Volume 15, Number 4, 2017
C. Edward Chang, Thomas M. Krueger and Mark A. Wrolstad
Target date funds (TDFs) are rapidly becoming a common means to prepare for retirement. Given the swelling demand for these funds, this research is a timely look at TDFs’ most recent decade. As of March 2016, 518 TDFs have been in existence for over ten years, providing a good sample period by which to assess their performance. Analysis of the entire universe of TDFs with ten years of data reveals that a significant factor in differentiating between better and worse TDF investment performance is their expenses and loads. Among the TDFs with the lowest 25% of expenses, we find significantly better returns without an appreciable impact on standard deviation of returns or beta. Selecting TDFs without loads increases both returns and risk measures. Risk-adjusted returns using standard deviation, negative return variance, or beta all demonstrate the value of avoiding high expenses and load/commission fees.