Despite their growing popularity in recent years, target-date funds are grossly misunderstood, according to a survey by Envestnet Asset Management.
In fact, fewer than 6% of investors have heard of target-date funds and can correctly describe them. Nearly 62% incorrectly thought that just by selecting a particular date for a target-date fund, the fund would do everything they needed to assure them retirement by that date.
More than one-third thought that target-date returns were higher than other investments, and 30% thought that investing in a target-date fund would enable them to save less money.
Investors also thought that target-date funds are not risky, with 38% saying they thought such funds guarantee returns, 41% saying there was no risk in such funds in a one-year period, and 57% saying it was unlikely they would lose money in a target-date fund over a period of 10 years.
In addition, only 8% said selecting a retirement savings rate was the most important planning decision they could make.