Financial Answers "IN SIMPLE LANGUAGE"

Back in May, 2008, I posted my first “Target Date Mutual Fund” article.  Including today’s blog post, I have done a total of eight blog posts on “Target Date Mutual Funds”.  You can look at the other posts by putting “target date funds” in the search box feature on “In Simple Language”.

Why have I written so much about these particular mutual funds?  Based on my recent research, target date mutual funds, by the year 2018, only eight years from now, will grow to almost $3 trillion.   This will amount to almost half the total assets in defined contribution plans.

Remember, defined contribution plans are your 401(k) plans used by for profit companies and 403b plans used by non-profit organizations like schools and hospitals.  It seems that target date mutual funds are becoming even more popular today than they have been.  This is even after the fact that there have been some “serious” issues with the way target date mutual funds have been managed.  Go back and read my previous posts and you will better understand what I am referring to.

Jumping on the target date funds bandwagon

Unless you have been living in a cave for the last twenty years, I am sure you have heard of Wal-Mart…the largest retailer in the world.  It looks as though Wal-Mart is introducing target date mutual funds to its more than 1 million 401(k) plan participants. 

It sounds as though Wal-Mart did its homework on target date mutual funds because it didn’t just accept any old target date mutual funds, Wal-Mart decided to get their own custom made target date mutual funds.  This is a prudent business decision because Wal-Mart, like everything else it does, likes to control its costs.  By having these specially made funds they will be able to do just that.

Wal-Mart also made another savvy business decision as to the structure of the special target date mutual funds.  They opted to have the funds be designed to take care of their employees-not just until the time that they retire-all the way through retirement.  Way to go Wal-Mart.

What I would be concerned with is whether or not specific investment help is going to be available for the 1 million plus Wal-Mart plan participants that will not understand what a target date mutual fund is or how it works.  If they believe that most of the plan participants will understand how these funds work…good luck!

All mutual funds have their own inherent complexities and need to be explained In Simple Language.  I would venture to guess that the majority of people working for Wal-Mart do not have a financial background or are familiar with financial terms and their meanings.  So if someone is advised to go into a target date mutual fund and they start reading the prospectus about what it is, how it works, and what makes up the target date fund…once again good luck.

HELP! Is on the way

Maybe help is on the way, not just for the people at Wal-Mart but also everyone else who has an interest in being involved in target date mutual funds.  It seems that the United States Labor Department and the Securities and Exchange Commission (SEC) are working on a type of consumer alert information that will be available to help you make a more informed decision.

This information is intended to clarify what a target date mutual fund is and how it may or may not fit into your overall investment goals.  Let’s hope that they do a good job and write it In Simple Language.  We all know how easy to understand most government information is.

Unfortunately, no timeline has been set as to when these guidelines will become reality.  We can only hope it will be timely.

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