WSJ Takes a Shot at TDFs

With all their popularity — which only seems to be growing — there are a lot of critics of the current crop of target date funds, as evidenced by a recent article in the Wall Street Journal. While the average for 2015 TDFs beat the bond average by more than 6% last year, it lagged the S&P 500 by more than 5%. Responding to criticism after the Great Recession, the average 2015 TDF has become more conservative, decreasing stock holdings from 49% to 40% since the end of 2008. The criticism highlights TDFs’ major weakness: Not all investors looking to retire within the same time horizon have the same needs. Many close to retirement need more aggressive portfolios to catch up, but TDFs are reluctant to take too much risk for the entire pool of investors — thereby losing out on market gains. Though participants who are behind on their retirement savings can go into a longer term TDF, take more risk or even put new money into stock funds, most will not take the initiative. Perhaps the answer is LDI. What are your thoughts?