While the trend toward managed investments — mostly in the form of TDFs — is moving in the right direction, there’s a basic flaw in how they are presented. That flaw can be easily fixed, however.
According to a study by Fidelity, only one-third of their participants are in a single TDF as of Q3 2013. This is comparable to Vanguard’s percentage — 31% as of the end of 2012, up from 8% in 2007.
In fact, nearly 30% of all assets are in a managed investment, including target date, risk-based and balanced funds, as well as managed accounts. But 38% of participants don’t understand that a TDF is an all-in-one, hands-off investment vehicle.
But the fix is relatively simple, Jerry Bramlett notes in his recent column in NAPA Net the Magazine. On the enrollment form, participants should be offered two investment strategies:
• “Door A,” which directs them to another page to build their own investment schemes; or
• “Door B” to select a single TDF.
Maybe some of the younger people get that. According to the Fidelity study, 72% of participants age 20-24 have all their assets in a single TDF.
