New article: “Target Date Funds: What’s Under the Hood?”

The Center for Retirement Research at Boston College has released a new Issue in Brief:

“Target Date Funds: What’s Under the Hood?”

by Edwin J. Elton, Martin J. Gruber, Andre de Souza, and Christopher R. Blake

The brief’s key findings are:

• While nearly 60 percent of new 401(k) participants have savings in target date funds (TDFs), little research has looked under the hood of this investment vehicle.
• This analysis uses a unique dataset with extensive information on the underlying mutual funds that TDFs hold.
• The results show that TDFs:
  • often invest in specialized assets (e.g., emerging markets and real estate);
  • charge fees that are only modestly higher than if an individual investor assembled a similar portfolio on his own; and
  • earn returns that are broadly in line with other mutual funds.

This brief is available here.