Target-date funds: The future of 401(k) investing?
When it comes to 401(k) investments, it’s likely your employees are relying more heavily on target-date funds.
Almost one out of every four 401(k) participants invest exclusively in target-date funds. That’s six times more participants than just five years ago. These are some of the major findings in “Vanguard’s Target-Date Fund Adoption in 2011” report.
Target date funds are a mixed category of mutual funds that automatically shift from more aggressive to more conservative investments as workers move closer to their target or retirement date.
Some of the other highlights include in the Vanguard Report include:
- 82% of 401(k) and other defined contribution plans offered a target-date fund last year
- 64% of employees participating in a plan for the first time invested in a single target-date fund, and
- target-date funds accounted for 27% of all retirement plan contributions.
Financial experts only see target-date funds growing in popularity in the future. So it’s essential for employers to remind employees that these funds do not guarantee 401(k) participants a set benefit when they hit their target date. They still need to be monitored like any other investment.
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