It looks like target date exchange traded funds (ETFs) could make their way into the market share dominated by traditional mutual funds. Retirement and the $2.5 trillion 401(k) business is the place providers all want to be, but the hurdle to clear – technology – is still the same for ETFs and their target date offspring, reports ETFGuide.
The primary idea behind these funds centers around asset allocation and the mix of stocks and bonds adjust automatically as the retirement date approaches. As the date nears, the allocation to stocks reduces as the allocation to bonds increases.
According to Morningstar, the average expense ratio for target date ETFs is 0.73% and this doesn’t include the expense of owning the underlying funds. These layered expenses add to the cost of owning these funds and eat up any gains.
ETF providers will need to host the ETFs on a next-generation retirement platform that eliminates the cost of acquiring the funds, otherwise they’ll hardly be worthwhile. But if they figure that out, a 401(k) shakeup will surely be in the offering.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.