Paycheck Chronicles

Beware Of TSP Rollover and Buyout Scams

Any benefit or product related to the federal government is a popular target for scam-artists and perfectly-legal-but-not-quite-ethical companies to try to take advantage of people....

Target Retirement Funds: Are They for You?

This content is provided courtesy of USAA.

By Joseph Montanaro, USAA Certified Financial Planner® Practitioner

U.S. investors had more than $300 billion invested in target retirement date funds as of the end of the third quarter last year, according to the Investment Company Institute. With that type of participation, you'd think the funds would be better understood, but unfortunately, that's not the case.

All things considered, I think this type of investment can be an excellent choice for investors who are unwilling, unable or uninterested in spending a significant amount of time managing their investment portfolio. Note that I'm not saying these investments don't require time and attention — just not an extreme amount.


A target retirement date fund is a professionally managed mutual fund that allocates your investment among a variety of different types of assets: stocks, bonds, cash, etc. The portfolio is rebalanced by the fund managers and becomes more conservative as the target date nears. This type of fund is designed to be a one-stop shop — invest in this type of fund and you should have a diversified portfolio. The Lifecycle or "L" funds available within the Thrift Savings Plan are a good example of this type of investment.

Low Maintenance

Being a glass-half-full guy, let's first look at some of the potential benefits of target retirement funds. You invest in a single fund and get a variety of investments that are managed for you. Since the portfolio of investments is picked, automatically rebalanced and designed to become more conservative as you approach the target date, this type of fund offers the advantage of allowing you to build and maintain a diversified portfolio. Then, keep your investments going and bump them up with each pay raise or promotion.

Look Under the Hood

You should understand that not all target retirement funds are created equal, even if they have the same target date. An informal survey of data available at www.morningstar.com reveals some sharp discrepancies between different funds with the same date. For example, when I looked at a few funds with a target date of 2020, I found the stock component of the portfolios varied from a low of 38 percent all the way up to 72 percent. And, expense ratios ranged from a paltry 0.18 percent to a whopping 1.96 percent. These differences impact the bottom line for you, the investor, and the returns reflect just that.

In both years, the performance varied substantially. In fact, in each year there was more than an 11% difference between the best and worst performers. That's huge! What do you take from all this? You do need to do your homework. Look for a fund with low expenses, an equity weighting that won't keep you up at night and performance. While past performance does not guarantee future results it can be a good indicator, so look before you leap.

No Guarantees

Target retirement funds do not offer a guarantee and are certainly not without risk. Unfortunately, some folks didn't understand that and may have been shocked when their funds took a beating in 2008.

Any fund is just an investment tool and not a cure-all. You still have to figure out how much you need to save to meet your goals, monitor your overall portfolio and progress towards those goals, as well as set aside money for your short-term needs. But, if you're looking for a convenient way to invest for retirement, a target date retirement fund may be worth considering.


Consider the investment objectives, risks, charges and expenses of the USAA mutual funds carefully before investing. Download a prospectus containing this and other information about the funds from USAA Investment Management Company, Distributor. Read it carefully before investing.

Diversification and rebalancing does not protect against losses or guarantee that an investor's goal will be met.

This material is for informational purposes. Consider your own financial circumstances carefully before making a decision and consult with your tax, legal or estate planning professional.

Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER® in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

The risks of the Target Retirement Funds reflect the risks of the underlying funds in which the Funds invest. The target date is the approximate date when investors plan to start withdrawing their money for retirement purposes. In general, the Target Retirement Funds' investment program assumes funds will start being withdrawn for retirement purposes at age 65. The principal value of the Target Retirement Funds is not guaranteed at any time, including at the target date. The Funds' objectives do not change over time.

Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers.

Military News App by Military.com

Download the new Military.com News App for Android on Google Play or for Apple devices on iTunes!

Featured VA Loan Articles