Target-date funds are a convenient way to help clients plan for retirement, but despite their similar goals, they aren’t all created equal. Many target-date funds feature relatively high equity allocations for investors that are near or past retirement age, which means that they may not be right for risk-averse investors or those that aren’t comfortable holding a lot of equity.
Fiduciaries should keep several things in mind:
- Establish an objective process for comparing, selecting and reviewing target-date funds.
- Understand the sponsor’s investments – equities and bonds – and how they change over time.
- Determine if the target-date fund’s expenses are appropriate and suitable for clients.
- Learn if target-date funds have the ability to get defensive during market crashes.
- Develop an effective communication policy and review portfolios with clients.
- Document everything to ensure that you’ve made defensible decisions.
During uncertain times, fiduciaries may face a lot of client phone calls and concerns. It’s common for investors approaching retirement age to feel blindsided by these sudden market downturns, but it’s equally important to stress the value of sticking with a long-term plan. You may also want to discuss making any adjustments to portfolio risk moving forward.