"At that point, you might be married, which means you have your own 401(k) and your spouse's retirement funds, and you might have outside assets from an inheritance or in an IRA," said Charles Bennett Sachs, a certified financial planner with Private Wealth Counsel. "That's when it can be a problem, because you don't know your overall allocation."
This is due to the underlying investments in a target-date fund. The fund's manager will adjust assets as necessary to match the fund's stated goal of its aggressive/conservative mix. So you could be in a bunch of, say, tech stocks in that fund but also have your outside investments heavily tilted toward that sector, resulting in overexposure to one industry.
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Additionally, there is broad disparity in the underlying investments of the nearly 2,200 target-date funds now out there, along with huge differences in exactly what path each follows as it moves from aggressive to conservative investments.
As of June 30, $690 billion was invested in target-date funds, according to data from Morningstar. By way of comparison, only about $44 billion was invested in such funds in 2004, and this year's figure is twice the $342 billion seen at the end of 2010.
Industry watchers doubt they will lose steam. Investment-research firm BrightScope predicts that more than $2 trillion will be parked in such funds by 2020.