The concept behind target-date mutual funds is simple: Investors place their money in a fund that is managed around the holder’s intended retirement age. Over the years, target-date funds grew increasingly popular as a safe, conservative investment choice, becoming a staple in many 401K plans.
Enter the financial crisis of 2008. As the stock market plummeted, older investors with 2010 target-date mutual funds found themselves facing losses of 40% or more.
The Securities and Exchange Commission (SEC) is now taking a hard look at target-date mutual funds and whether some companies and financial advisors misled investors about the risks associated with the investments.
As reported June 25 in the New York Times, disclosure policies and regulations overseeing target-date mutual funds are opaque at best. Investment risks vary widely from fund to fund. Adding to the confusion for investors is the fact that mutual fund companies often create target-date funds by bundling them together with existing mutual funds. In doing so, companies or financial advisors are able to collect more assets and fees, while investors are left to figure out what the funds actually contain and exactly how much they are being charged.
“At the end of the day, consumers need to know what they’re getting into,” said Senator Herb Kohl, Democrat (Wisconsin) and chairman of the Special Committee on Aging, in the New York Times article. “We’d like to see regulation, whether it’s a standardization of target-date composition, or increased clarification of information made available about the plans.”
If you are an individual or institutional investor and have concerns about your investments, contact Maddox Hargett & Caruso at 800.505.5515. We can evaluate your situation to determine if you have a claim.