Today, the amount of stocks in funds with the same target date can vary widely depending on the investment firm. Among 2010 funds, stock holdings range 26 percent to 64 percent, reports Morningstar Inc. And losses last year in 2010 funds varied from 9 percent to 41 percent.
Price says it re-evaluated the asset allocation of its target funds after last year's stunning decline in the stock market. Price's target-date funds for workers more than 25 years away from retirement hold 90 percent in stocks. By the time a worker is at retirement, the fund holds 55 percent in stock, dropping to 35 percent at age 80 and 20 percent at 95 and beyond. After the review, Price didn't make any changes.
A target-date fund isn't geared for people wanting to cash out their account the day they retire and, say, buy an annuity, says Jerome Clark, portfolio manager of T. Rowe Price Retirement Funds.
"Our target-date funds are designed to be a lifetime product. What we want to do is get [clients] to retirement and over the next 30 years," he says.
Clark notes that "2008 was a very dramatic bear market" and all types of investments - not just target funds - took a beating. And one bad year, he says, won't determine the success of your retirement.
Fidelity Investments and Vanguard also reviewed their target funds and left the allocations untouched.
Charles Schwab, though, made changes in April to its retail target funds, including reducing the stock exposure for older investors. For instance, Schwab's 2010 target-date fund now has 43 percent in equities, down from 52 percent.
"Some investors changed their appetite for risk and, in many cases, find that they are more conservative than they actually thought they were," explains Peter Crawford, a Schwab senior vice president.
The public hearing this month about target-date funds will look at how asset allocations and underlying investments are selected as well as how risks are disclosed to investors.
"I would like to see better disclosure of what the returns have been, what the various investments are, and what the risk, cost and fees are in a way that people can read them," says Steve Weisman, a senior lecturer of financial planning at Bentley University. Prospectuses are too complicated, he says.
Is a target-date fund for you?
If you're a hands-on investor or have an adviser, you could be better off designing a portfolio tailored to your risk profile and financial goals, experts say.
