Target-Date Funds Win Assets as Criticism Abates
Morningstar finds the retirement funds more popular--especially as returns rebound.
Target-date funds are an increasingly popular choice for Americans' retirement savings, especially as the funds' performance has rebounded in the bull market.
Morningstar's 2011 Target-Date Series Research Paper, an annual look at broad trends across target-date funds, found that target-date funds saw healthy inflows in 2010 relative to other mutual fund categories. Target-date funds had net inflows of $47.5 billion in 2010, a small increase over 2009's $45 billion in net inflows. Total net assets in open-end target-date funds reached $341 billion. Morningstar tallies another $33.7 billion in collective investment trusts, or CIT, target-date funds. Morningstar's count of CIT assets is not a comprehensive accounting since firms report CIT assets voluntarily, but companies with larger retirement plans are more often skipping traditional mutual funds and using cheaper CITs in their 401(k) plans.
Why They're Growing and Where the Money's Going
Target-date funds owe much of their recent growth to the U.S. Department of Labor, which allows retirement plans to designate target-date funds as default investments for employees who don't choose a specific investment from their 401(k) plan's menu. This default designation has prompted billions to flow into target-date funds each year--even during 2008's market crash.