Financial advisors dislike target-date funds because these funds tend to charge high fees and have limited histories. It is difficult to expect a certain rate of return from target-date funds. As of 2015, target-date funds have certainly grown in popularity over the past decade, due to the fact that they are very passive investment vehicles that adjust portfolio exposure to stocks and bonds as a person ages. Conventional wisdom in the target-date world says that as you age, your exposure to stocks decreases while your bond exposure increases. While this is certainly a conservative move and understandable as an individual ages, target-date funds can be disadvantageous during low rate environments.

Lack of Long-Term Historical Performance

As target-date funds are a relatively new concept, there is limited performance history available for financial advisors to analyze, which is another reason they tend to shy away from these investment vehicles. Most target-date funds have been around for less than 10 years, making understanding of their long-term performance quite cloudy. Additionally, target-date funds performed very poorly during the financial crisis of 2007-2009. For a passive approach to investing, these funds got hit hard, which could be another reason financial advisors are concerned with putting their clients into target-date funds.

Difficulty Comparing Different Target-Date Funds

Target-date portfolio managers tend to have different strategies, which is concerning because there is a lack of unity in the approach to what is considered an ideal target-date portfolio. This creates headaches for your financial advisor because some target-date portfolio managers believe in a larger share of the fund in stocks throughout the lifetime of the fund to keep inflation contained. However, others suggest this kind of strategy is not warranted and could be harmful to investors as it increases risk.

Overall, financial advisors are trying to create portfolios for their clients that are well-diversified at the lowest costs possible, with the highest yields possible and positioned to succeed. Target-date funds are still too young and working out the flaws, although the concept is certainly appealing to the investor who wants a long-term “let it be” portfolio. There is a lack of standardization in the management of these funds, which can be difficult for investors as this makes target-date funds unequal.

Combine that with the average fees being charged to have exposure to these funds and their relatively varying performances, and financial advisors would rather put their clients into funds that feature more low-cost, diversified portfolios. In the end, the target-date fund is more of an option for the investor who chooses to go at retirement investing alone with limited desire to make changes to the portfolio. Financial advisors, on the other hand, analyze and allocate clients to funds that have solid track records of performance, reasonable costs and reliability when economic times are bad.

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