Target date exchange traded funds (ETFs) are a different animal when it comes to investing.
A recent story we did on the subject noted that one in particular, the TDX Independence 2010 (TDD), was demonstrating “acceptable” performance although it was down year-to-date.
How is this so? In short, the fund is basically doing what it’s supposed to do.
Target-date funds are a unique balance of fund in that they automatically adjust their allocation of equities and bonds. The closer you get toward your retirement date, the higher the ratio of bonds in your portfolio, earning their name of a retirement plan on autopilot.
These funds aren’t really meant to appeal to the investor who actively trades and uses trend-following as a strategy. When you buy a target-date ETF, you’ve essentially committed yourself to the buy-and-hold strategy.
TDD is designed for investors who plan to retire around 2010. 8% of the fund’s assets are allocated to international equities, 24% to domestic equities and 68% to fixed income. The allocation to equities is adjusted downward to 11% in the year 2010.