Investors should always consider the weightings of the funds before relying on them as different providers may have varying methodologies in constructing their products. For example, the DBX TDX Independence 2020 ETF (NYSEArca: TDH) holds 43% in domestic equities, 13% in international equities and 44% in fixed income, whereas the iShares S&P Target Date 2020 Index Fund ETF (NYSEArca: TZG) has 42.3% in domestic equities, 19.4% in international equities and 37.1% in domestic fixed income.
Potential investors who are also thinking about supplementing a target-date strategy with additional asset allocations into equities and bonds should also mind their overall portfolio weights. Furthermore, target-date funds do not guarantee perfect protection for future events. If the equities markets were to miraculously double in returns as the target-date ETF matures, the retiree may not realize the large gains since the fund will have a higher allocation in fixed-income. Similarly, the funds don’t protect investors if the markets suddenly tank before the target date is reached.
Nevertheless, the target-date ETFs provide a simple and easy way for investors to set aside some money for their retirement years.
For past stories in this series, visit our “What is an ETF?” category.
Max Chen contributed to this article.