Instead of going up, their investments took a dive.
Even those who invested in fairly conservative 2025 target date funds, designed for workers nearing retirement, found their accounts looked battered after December’s bruising market shakedown.
“Stocks and bonds, both domestic and international, posted negative returns in 2018, meaning that even diversified portfolios registered losses,” said Greg McBride, chief financial analyst at Bankrate, in an interview with Financial Planning magazine.
“Target-date funds were no exception.”
Despite losing money in 2018, the funds typically registered decent gains over the recent five-year period. And since they are designed for workers preparing for retirement, it’s important to keep a long-term perspective rather than focus on short-term results.
Target date funds, which offer a mix of stocks and bonds for 401(k) investors depending on their projected retirement year, are not immune from losses, said McBride. But they can offer a diversified portfolio that is reallocated as the investor’s time horizon changes, helping to reduce risk.
Financial Planning Tip: The stock/bond allocation in a typical target date fund will vary depending on your projected retirement date and the investment philosophy of the sponsoring investment firm, so be aware that competing funds may not offer exactly the same mix.
Most 2025 target date funds have 50 to 60% of their portfolio invested in stocks (both U.S. and foreign) and 40 to 50% of the portfolio in bonds and cash. And while results vary, the typical 2025 target date fund saw its investments decline about 5.5% in value in 2018.