But for young investors or those too busy to manage their 401(k), target-date funds make sense. Do your homework, though.
"Most people just look at the date," says Kirk Kinder, a financial planner in Bel Air. "That's the problem."
Read the prospectus and any other materials your employer or investment company gives you about the funds. Look at the asset allocation and how it will change over time, something called the glide path. Does the mix of stocks and bonds match your stomach for risk or what you plan to do with the money in retirement?
Look at the holdings in the fund. OppenheimerFunds' 2010 fund lost 41 percent last year because it held a risky bond fund, says Morningstar analyst Greg Carlson.
Check fund fees that can range from 0.20 percent of invested assets to a steep 1.5 percent, Carlson says.
"Fees play a pretty significant role in your return," he says.
Once you hit 50 or so, your finances will likely be more complicated, says Pamela Hess, director of retirement research at Hewitt Associates. You should review the target fund then because its one-size-fits-all allocation might no longer suit you and other investment options in the 401(k) might serve you better, she says.
If you stick with the target-date fund, review it regularly to make sure it continues to meet your needs.
