Page 71 - Ready Set Retire

Ready. Set. Retire!

as you have less time to recover from a significant downturn.
TDFs are designed to automatically move assets from “riskier”
equities to “safer” bond funds as you get older. While this all
sounds great in principle, these often complex and expensive
investments often miss their mark.

So why is so much money moving into them? Why do 71
percent of 401(k) plans include target-date funds in their
investment lineups? Why have they become the default choice
when people don’t select a choice, and why is over $50 billion
a year flowing into them?

First 401(k) s are buy and hold strategies. Now you may have
actively managed funds in your 401(k), however, most people
just keep dumping money into their accounts every year and
never take it out. Often, they are not even aware of how they
are performing, and many times confuse their contributions
for gains (growth is growth, right?) But people don’t, as a rule,
take their money out of the funds, and when they do, it’s
normally a reaction to down markets and results in assets
parked on the sidelines doing nothing. It’s the classic “pay to
play” arrangement. If you aren’t in, you aren’t making any
money, and if you are in you are subject to losing it all. There
isn’t any way to lock in gains and keep making money, so, your
whole nest egg is at risk or nonproductive.

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