After losing a quarter of their value on average in 2008, and sending ripples of outrage and cries for regulation through Washington, target-date funds bounced back in 2009, making up a majority of their steep losses.
Some believe a return to profit may ease investor worry about these retirement funds and move the push for regulation to the back burner. But others think now is the time to ratchet up regulation before the next recession burns more investors. Target-date funds are retirement plans that combine stocks, bonds and other investments and become more conservative as the investor approaches retirement age. These mutual funds take the guesswork out for investors by allow them to choose the year they intend to retire and then the asset allocations are chosen for them. Voila. Yet reality is never as easy as it sounds. Like the stock market, these target-date funds got slammed during the recession, losing an average of 23% in 2008. And the 2010 funds, intended for those retiring at or around 2010, became the subject of scrutiny and anger as investors feared that they had lost a good portion of their retirement money. As Washington grew concerned that investors were being duped by conflicts of interest and false advertising, in stepped Senate Special Committee on Aging Chairman Herb Kohl, D-Wis. Kohl announced last month that he would be introducing legislation that would require target-date fund managers to take on fiduciary responsibilities, which would mean they’d have to put investors’ interests above their own, as well as face increased regulation and legal liability. He also questioned investing in junk bonds as part of a target-date fund’s underlying investments. Morningstar found that six of the nine largest U.S. target-date funds invest in high-yield, high-risk corporate bonds.
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