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Target-Date Funds Keep Growing in Popularity

Jeff Holt, CFA

Jeff Holt: Target-date funds have continued in their strong-growth trend through the first nine months of 2018. Looking across all 12 Morningstar Categories of target-date funds, assets totaled nearly $1.19 trillion as of the end of September, up from $1.11 trillion at the end of 2017. The growth in assets has come through both investors putting more money into the funds and the generally positive returns from the funds over that time.

Coming off a record year when they saw $70 billion in net flows from investors, target-date funds have already seen $45 billion in net flows year to date through September. The 2035 category's $8.6 billion in net flows was the highest, while the 2020, 2015, 2000-2010, and Retirement categories saw net outflows. And those outflows don't come as a surprise since funds in those four categories are intended for investors very near or already in retirement. As we've seen in recent years, target-date funds that hold in low-cost index funds continue to be popular.

Target-date funds also produced positive absolute returns in general year to date through September. The average return for the target-date fund categories ranged from 0.7% in the Retirement category to 4.3% in the 2060+ category. However, market declines through the first few weeks of October has taken those year to date returns into negative territory.

Still, given their role as the default investment in many defined contribution retirement plans, investors can expect to see assets in target-date funds continue to rise over the long run.