Target-date mutual funds are designed to help investors achieve long-term savings goals. As the target year in the fund’s name approaches, the mix of investments in the fund becomes more conservative, with fewer stocks and more bonds.
But nearly all target-date funds ended 2011 with investment losses. Funds in eight of the nine target-date categories that Morningstar tracks lost money. Those categories range from funds with the years 2000 to 2010 in their names — designed for current retirees — to funds intended for young investors hoping to retire around 2050.
While target-date funds posted losses, the U.S. stock market finished the year largely flat, and the bond market rallied. The Standard & Poor’s 500 index ended the year virtually unchanged, but was up 2.1 percent including dividends. As for bonds, the Barclays Capital U.S. Aggregate Bond index rose 7.8 percent. However, comparing target-date performance with domestic market indexes can be misleading. Many target-date funds invest in foreign stocks and bonds in addition to U.S. securities. And some also invest in alternative assets such as commodities, or real estate.
Below are average returns for target-date fund categories:
Through Dec. 30