Target-date exchange traded funds are continually re-balanced throughout ownership to maintain an age-appropriate level of risk. Recent Federal regulation within the financial industry has brought target-fate funds in focus and some are questioning whether investors understand the logic and risk associated with them.
“The basic idea of target-date funds is pretty simple. They settle on a year in which an investor expects to retire, then gradually trim their stock exposure as that year approaches and the investor’s tolerance for risk wanes. Such funds are becoming a major way that working Americans save for retirement,” Michael A. Pollack wrote for The WSJ. [New All-ETF Target Date Funds]
Recently, asset managers have been altering key features of the funds, particularly when it comes to equity exposure. Others have added in less-traditional asset classes into the mix, such as commodities, real estate and absolute return strategies.
Many industry insiders have no problem with mixing up the strategies and utilizing the tools available. However, the problem lies with the fact that nobody knows exactly how the approach will work, and which one will work the best. [What is an ETF – Target Date Funds]
The timing of the push from Federal regulators proposing stricter disclosure rules about investment strategies is clashing with a time when many asset managers are experimenting.