Eight in 10 401(k) savers are invested in target-date funds (TDFs). That’s according to Vanguard’s “How America Saves 2021” report, an in-depth look at 401(k) plans and how U.S. workers are preparing for retirement.
The growing popularity of TDFs isn’t surprising. More 401(k) plans are adopting automatic enrollment, which selects TDFs for plan participants by default.
TDFs are also easy to own relative to other securities. They maintain a defined asset mix that gradually gets more conservative over time. If you trust the TDF strategy, you don’t need to do much — the fund is positioned for growth in your younger years and then capital preservation as you near retirement.
Still, TDFs aren’t infallible. You can easily end up in the wrong one, which will make it harder to reach your retirement goals.
Here are four ways your TDF investment can fall short and how to avoid them.
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