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The Money Compass: Where Your Money Went and How to Get It Back by G. Stevenson Smith, Mark A. Grimaldi

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Chapter 5

Who Are Target-Date Retirement Funds Targeting?

You, that’s who.

Let me tell you a story about Jane, who wrote to me in 2013 about an experience she had investing in target-date retirement funds, also called target-date funds, which automatically rebalance their assets to become more conservative as an investor gets closer to retirement.

In 2005, Jane Doe, as I’ll call her to protect her privacy, received a large inheritance from her parent’s estate. Having no experience managing a six-figure portfolio, Jane asked for recommendations, and friends suggested she call one of the large national investment firms. Jane did so, speaking to a client service representative who asked questions designed to determine Jane’s investment experience, investment horizon, and tolerance for risk—much what you’d expect of any financial professional.

“At the time, I was 57 years old and I thought that this inheritance would put me on pace to retire at age 65,” recalls Jane, a single mother and the sole breadwinner in her family, who had previously handled all of her own retirement planning, placing other investments in very conservative mutual funds.

The client service representative Jane spoke to told her that a target-date fund would be a fantastic choice, and explained why. The “target date,” the client service representative explained, refers to a target retirement date, and often is part of the name of the fund. For example, you might see target-date funds with names such as Retirement ...

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