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Target-date funds follow a variety of glide paths and asset allocation models that make evaluating them against standard benchmarks difficult. One solution may be to classify target-date funds against a set of target-date indexes that are differentiated by risk level: conservative, moderate, and aggressive.
Target-date funds are quickly becoming a core holding of 401(k) plans and retirement portfolios. Despite their simplified approach to asset allocation, it's important to understand the allocation mix. Pay particular attention to mid- and small-cap stocks, especially among target-date funds beyond 2020.
They are supposed to be "buy-and-forget" funds for investors, but as an advisor, you need to do some initial due diligence and ongoing monitoring to make sure these funds meet your clients' needs.
Target-date funds have proved to be a popular "auto-pilot" investment option. But another solution may be world-allocation funds that offer investors broad diversification outside of the U.S.—not to mention a stellar 10-year track record.
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