Why Not All Target-Date Funds Are Created Equal

May 21, 2010 RSS Feed Print

Allocation strategy. When saving for retirement, investors need to consider how their portfolio is split up between stocks, bonds, and cash. Different fund families offer different "glide paths"—or allocation strategies—throughout the life of the investment. Vanguard offers the most conservative strategy of the big three. Investing solely in index funds is generally considered to be a less risky strategy because such funds track an index instead of taking on more risk in an attempt to outperform it. Vanguard's glide path is also more conservative. Take Vanguard Target Retirement 2050, which would be an appropriate fund for someone who is currently between the ages of 18 to 27, according to Vanguard's website. In the beginning, 90 percent of the fund's assets are in stocks. Then the mixture changes to a 50-50 mix by the target retirement date. After that, it takes seven years for the fund's allocation to reach 30 percent stocks, where it will stay until the investor cashes out.

T. Rowe Price offers a much more aggressive strategy. Its 2050 fund starts with a similar stock-heavy allocation. Once the fund reaches its target retirement date, the allocation to stocks is 55 percent. From that point, it takes 30 years for the fund to lower its stock allocation to 20 percent, according to T. Rowe Price's website. The Fidelity Freedom 2050 fund is a bit more conservative. After it reaches the target date, the fund takes 15 years before reaching a 20 percent stock allocation and an 80 percent fixed-income and cash allocation, according to Fidelity's website.

	2050	2045	2040	2035	2030	2025	2020	2015	2010	2005	2000
Fidelity Freedom	89	84	84	82	79	70	65	54	50	47	23
T. Rowe Price Retirement	93	93	93	93	89	83	76	69	60	50	42
Vanguard Target Retirement	90	90	90	90	84	76	69	61	51	38	30
Numbers are the percentage of total assets invested in stocks.
Data as of 3-31-10
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