A Powerful Rebound for TDFs

The year 2008 was not easy for target-date funds, especially those with 2010 portfolio, when portfolios fell about 20 percent or more.

The stock markets' rebound in 2009, though, has benefitted 2010 target-date funds (TDFs), with many staged solid recoveries. According to a recent article by Josh Charison at Morningstar (Fund Spy: A Much-Maligned Fund Group Bounces Back; 12/31/09; http://news.morningstar.com/articlenet/article.aspx?id=320427), through November the average 2010 TDF returned 20 percent. As in 2008, the returns were dispersed around the average, with top fund growing by over 28 percent and the weakest performer returning less than 9 percent.

Charison urges investors to take a longer-term perspective with TDFs: "Critics were too quick last year to label longevity-oriented glide paths a failure and to assume that glide paths intended to preserve capital near retirement were the only sensible approach. Similarly, prior to 2007, the drumbeat around longevity risk was loudest, while those worrying about the potential of market collapses could scarcely be heard above the din of the bull market. It will require full, multiyear cycles to determine the true worth of the varied approaches to glide-path construction."