“Target-Date” mutual funds are a natural progression in the Coffeehouse world of bringing simple investment ideas to investors across the country. Along with index mutual funds and exchange traded funds, “Target-Date” mutual funds are one of the more intriguing investing innovations to appear in a long time. These investments are “all-in-one funds” that consist of a broadly diversified holding of common stocks and bonds. What makes these investments so unique is that the bond allocation automatically increases over time as the investor’s need and ability to take market risk diminishes. The upside to these funds is that it is incredibly easy to have a diversified portfolio with one simple mutual fund, with an allocation that automatically changes over time.

Downside of Target Date Funds

The downside is that the fund might have an allocation different than what you expected, or is appropriate for the risk you want to take, as many investors who invested in these funds have found out over the past two years.

To get a better understanding of the issues surrounding Target-Date funds, Mel Lindauer, a founding member of the Vanguard “Diehards” discussion board wrote an excellent column on Morningstar’s web site to shed some light on these controversial mutual funds.