The Next 401(k) Scandal: Excessive Risk in Target Date Funds
The first 401(k) scandal was excessive fees. The next scandal will be excessive risk in default investments, namely target date funds.
The $trillions invested in Target Date Funds (TDFs) and Individual Retirement Accounts (IRAs) are destined to be devastated by a risk that is well documented but generally unrecognized. Sequence of Return Risk will destroy lifestyles and this time it will be much worse than 2008.
Fortunately, each of us can control this risk because it’s personal, but not if we wait until it’s too late. We only get one chance in a lifetime to dodge this risk. Unlike other risks, this risk is individualized and we know when it is greatest so we can protect or take the gamble that losses won’t occur in our own personal Risk Zone. It’s like sky-diving risk where there is little chance of recovering from being unlucky; the odds of bad luck may be low, but the consequences are huge.
Serial entrepeneur specializing in target date funds and baby boomer investment education.
Ronald J. Surz is co-host of the Baby Boomer Investing Show and president of Target Date Solutions and Age Sage, Target Date Solutions serves institutional investors, namely 401(k) plans. Age Sage serves do-it-yourself individual investors. His passion is helping his fellow baby boomers at this critical time in their lives when they are relying on their lifetime savings to support a retirement with dignity, so he wrote a book: Baby Boomer Investing in the Perilous 2020s .
