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How are Target Date Funds like Vitamins?

How are Target Date Funds like Vitamins?

July 16, 2021

Do you have a Target Date Fund in your 401k? If so, chances are you’re invested in it somehow, as 77% of all plan participants who are offered one are invested in one.1  And if you’re a Millennial, you’re likely to have all of your investment in one!1 A Target Date Fund (or TDF for short) is a mutual fund that is designed to be the "appropriate" allocation of risk/reward based on a specific goal retirement date. That seems harmless enough, right? Well then, like the title says, how are Target Date Funds like Vitamins? Because they’re so popular and everyone needs at least a dose of them? HA! No.


There’s no oversight/regulation on both

When discussing Target Date Funds (TDFs for short) I use a popular supplement, gingko biloba, as a metaphor. There’s no two gingko biloba vitamin products that are the same. In an unregulated industry, pretty much anything goes.  Some might have 20% gingko biloba and lots of fillers whereas another maybe has 90% gingko biloba and much less fillers. So if no two are the same, then how can you really know which one is the right one for you?

Well, just like in vitamins, it’s in the hands of the consumer to look underneath the hood. When dealing with vitamins and supplements, it can be even more drastic than just irregularities in formulas. Some fillers have actually been found to be harmful. What’s more is, you can’t believe the advertising. Many supplement manufacturers are falsely advertising their products as containing high quality ingredients, and in some cases the supplement you purchased may not even contain a trace of the key ingredient, yet the manufacturer can still claim it's there and sell the product as if it were!  While there are some guidelines that some supplement companies follow, and a newer certification process has been implemented (called the USP (United States Pharmacopeia)) it’s all just progress toward full transparency. It's still the consumer’s job to ensure the safety of what they're taking when it comes to supplementation. 


They need to be researched before you jump in

Based on the above, you can imagine just how much of a jungle it is out there in the supplement world.  In general, doing your research beforehand and foregoing the "slick marketing" lingo will serve you best.  Buying from a trusted resource that is well educated on not only the supplement but also why it might be recommended for you and how best to take it will increase the benefits of taking the supplement. It’s sad to say, but the majority of supplements sold on the market today are questionable at best, and it's not just because it may not contain enough of the key ingredient.  You’re likely assuming that the product is safe, that the stated potency rate is actually in the bottle, and that the ingredients are pure.  Those assumptions can have you flushing your money right down the toilet, and possibly even at the expense of your health.  Most of us choose to supplement because we are working to IMPROVE our health, however, low quality supplements may actually increase the toxic burden on your body and DECREASE your wellness! 

Similar to vitamins, my research on TDFs has shown incredible disparities between them as a whole. Some are way too high in stock vs. bonds for their risk category, some are missing entire sectors of the market, and they all differ as to their glide-path (I’ll explain more on that later).

The first thing to look at is the risk profile of the fund. Just because two TDFs say they’re invested for a retirement in 2045 doesn’t mean they will be the same risk-profile. For instance, out of two name-brand 2045 Target Date funds, as of August 31, 2020 one had 7.1% invested in bonds and the other had 9%.2 Though this difference between funds might seem negligible, I would beg to differ as they are designed with different philosophies on risk. What’s more is their profile is just a snap-shot in time. These funds are sure to make changes along the way, and there’s no telling how that will end up. Will it invest more or less in bonds over time? And when will they know to go more into bonds? And what type of bonds should they invest in?  As an industry professional, I’m aware of a few “brands” that are more aggressively allocated in their target-date funds than their peers, so they look fantastic when the markets are good but have much deeper losses when the markets are down. How is the average investor supposed to know this?

Next, it’s important to know what sectors of the market are being represented. Most TDFs will include the typical sectors like large caps, mid-caps and small caps. But what about commodities? Or TIPS (short for Treasury Inflation Protected Securities)? And even if they do have those sectors, how much of each sector do they have? There’s no rule out there saying anything like “every 2050 fund needs 25% invested in developed international stock, 5% in emerging markets stock” or the like. Lastly, how often do they rebalance the fund to make sure it’s not too risky or too quiet? To prove this point, I looked at two 2045 Target Date funds on August 31, 2020. One had 41.16% invested in international equities and the other had 30.2%. That’s a significant difference!2  

Another main issue is how the fund is designed to get you either TO retirement or THROUGH retirement. A “to” retirement fund will reach its most conservative allocation on the date of the fund’s name. After that date the allocation typically doesn’t change throughout retirement. This is contrasted by the “through” retirement fund, which generally reaches its most conservative allocation after the target date and will continue to rebalance until that date.3 This is an important variable as it can mean your assumption that it will provide a comfortable level of growth over time for you to get you through your retirement, will instead just get you to your retirement date and then be extremely conservative.  


What does your vision of retirement look like?  

If you’re someone who plans for a very long retirement, you might need more risk to carry you through than your typical retirement peer. Or you might be the someone that needs lots of secure income, which means you should be invested quite differently, in low-risk investments.

If you’re someone that just wants to survive (be alive) vs. thrive (travel, be active, etc.) in retirement, your vitamin needs will differ. The main question to ask yourself here is, “Why are you taking supplements anyway?”  Is it because the marketing says that you'll "have all the energy you need" all day, or because your lifestyle lacks good nutrition?  If it's the latter, you're on the right track.  Supplementation is just that- a product that your body can use and absorb to supplement the nutrition that may be lacking in your diet.  If your vision is for a fun, active and enjoyable retirement that includes movement, you'd better make sure you research what goes into your body now and invest the time and money to ensure that your reward will actually include a physically able and active body to retire with. Of course, the best thing to shift is your lifestyle, but if you're like many of us, that may not be convenient or possible for a multitude of reasons.  When you supplement with a high quality, fully tested, safe supplement you're filling the nutrition gaps that your lifestyle may be leaving wide open.  There’s no one-size fits all!


You don’t always get what you pay for

In TDFs, be watchful of the fees. Target date funds are typically a “fund of funds”, meaning, they are one mutual fund made up of many different mutual funds. To illustrate this, let’s use a hypothetical fund company called XYZ. XYZ has many different mutual fund offerings, among them is XYZ Large Cap Growth, XYZ Developed International, XYZ SMID Cap Value, etc. An example of one of the TDFs might look like (again, this is completely hypothetical and only being used for illustrative purposes):

25% XYZ Large Cap Growth

25% XYZ Large Cap Value

20% XYZ Developed International

15% XYZ SMID Cap Growth

15% XYZ SMID Cap Value

Each of these funds has their own individual expenses, so once they are bundled together into a TDF there is another fee charged on the bundle. In other words,  you may be paying fees on two levels: fees for each of the individual mutual funds owned within the target date, and then another fee on the actual target date fund. Sometimes the higher fees are justified and the end-result is a higher return, but sometimes that’s not the case.

In terms of supplements, when it comes to your health it shouldn’t be about the minor cost difference. Your health is vital, and you should practice saving your money elsewhere.  Once you learn more about how to save money AND your health, just like any great shopping sleuth, you'll know exactly where to find the great deals!  The necessary steps in making a supplement deserving of your body will cost a little more - quality raw ingredients, honest research, and high-quality testing are all necessary steps in creating a great supplement.  And really, in the end, aren't you worth it?  And what’s more is, what good is all that retirement income you’ve so diligently been saving when you can't get out there and enjoy it?  Don’t just think about giving yourself the most money for retirement, give yourself the best of both assets when you retire!



The main message here is that you should maintain a level of caution when investing in the future of both your health and investments. This post was co-written by *Anke Johnson, a Certified Health and Life Coach and Functional Nutrition Consultant of Forward and Up Wellness, LLC. For two things that may seem easy and harmless, as industry professionals, we both want to emphasize your need for due diligence. Sometimes that includes research, but sometimes it includes a step further, like calling a professional. 

Lincoln Financial Group has a web page that talks about target date funds. Feel free to visit this page for more information:

1 Adamczyk, Alicia. When is it a Bad Idea to Invest in Target-date funds? 22 June 2019.

Farrington, Robert. The Trouble With Target Date Funds and How To Use Them. 11 February 2020.

3 Target-Date-Funds- Find The Right Target for You. 16 July 2021.

*Not affiliated with Lincoln Financial Advisors Corp. 

The opinions expressed are those of the author(s) and not necessarily those of Lincoln Financial Advisors Corp.

The target date is the approximate date when investors plan to retire or start withdrawing their money.  The principal value is not guaranteed at any time, including at the target date.

Carrie Waters Schmidt is a registered representative of Lincoln Financial Advisors Corp. Securities and investment advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. Equanimity Wealth Planning and Investing is a marketing name for registered representatives of Lincoln Financial Advisors.