How to Find a Target Date Fund That Matches Your Objectives
- Investment advisors and the Department of Labor encourage target date fund investors to match their objectives with TDF prospectus objectives, so I’ve assembled internet links to most fund prospectuses for you.
- The prospectuses reveal that TDFs have two types of objectives, a boilerplate for regulators in prospectuses and marketing hype in brochures. Both are similar across TDFs.
- Brochure objectives are financial whereas prospectuses contain return objectives. The only bridge that can connect these two is adequate savings, which is problematic.
What do you want to achieve with your target date fund? Most TDF providers say in their sales literature that their objectives are to (1) replace pay and (2) manage longevity risk. But that’s not what TDF providers say in their official documents, namely their prospectuses. Most TDFs have the same stated objectives in their prospectuses. They read something like this boilerplate: “Provide capital appreciation and current income consistent with its asset allocation.”
The table below provides links to TDF prospectuses, and the statement of objectives that is in those prospectuses. As you can see, the stated prospectus objectives tell us very little and are quite similar. These official objectives are not helpful in differentiating offerings. The objectives in sales brochures are not in prospectuses because the right course of action for achieving brochure goals is to save enough. If an investor has not saved enough, as is the usual case, replacing pay and managing longevity risk are mere hopes. An objective without a reasonable likelihood of achievement is a mere hope, a phony sales pitch
It’s like maintaining two books of accounting records, one for taxes and the other for investors. TDFs have two sets of objectives, one for regulators and the other for investors. Fund companies might say that brochure objectives are financial, whereas prospectus objectives pertain to investment performance, but the only bridge between these two is adequate savings, an unlikely condition.
So How Do I Match My Objectives?
The unfortunate truth is that you can’t match your objectives to a mutual fund TDF. The reason is that your needs and circumstances are unique while TDFs are all one-size-fits-all. But you can benefit from the risk management and rebalancing disciplines in target date funds by creating your own personal TDF.
|Click to open Prospectus||Objective|
|SMART Index – Hand B&T||(1) preserve the purchasing power of participant assets, and (2) grow assets as much as possible without jeopardizing the primary preservation objective|
|John Hancock Ret Choice||High total return until the fund’s target retirement date, with a greater focus on income as the target date approaches|
|Allianz||Capital growth and preservation consistent with its asset allocation|
|JP Morgan||High total return with a shift to current income and some capital appreciation over time as the Fund and some capital appreciation over time as the Fund approaches target date|
|PIMCO||Maximize real return, consistent with preservation of real capital and prudent investment management.|
|Wells Fargo||Seeks to approximate, before fees and expenses, the total return of the Dow Jones Target Index.|
|USAA||Capital appreciation and current income consistent with its current investment allocation|
|TIAA-CREF||High total return over time through a combination of capital appreciation and income|
|Vanguard||Provide capital appreciation and current income consistent with its asset allocation|
|Voya||Total return, moving to a greater emphasis on current income and inflation protection|
|Principal||Total return consisting of long-term growth of capital and current income|
|American Century||The fund seeks current income. Capital appreciation is a secondary objective.|
|Fidelity Index||Seeks high total return until its target retirement date|
|T Rowe Price||Seeks the highest total return over time consistent with an emphasis on both capital growth & income|
|Alliance Bernstein||The Strategy seeks the highest total return over time consistent with its asset mix|
|Great West L1||Capital appreciation and income consistent with its asset allocation|
|Blackrock||Provide for retirement outcomes based on quantitatively measured risk|
|John Hancock Ret Living||High total return through its target retirement date, with a greater focus on income beyond that date|
|Fidelity||Seeks high total return until its target retirement date|
|Great West L2||Capital appreciation and income consistent with its asset allocation|
|Great West L3||Capital appreciation and income consistent with its asset allocation|
|Franklin Templeton||Long-term total return consistent with its asset allocation.|
|State Farm||Broadly diversified across global asset classes, with asset allocations becoming more conservative over time|
|American Funds||Seeks to balance total return and stability over time|