By: Jack WaymirecloseAuthor: Jack Waymire Name: Jack Waymire
Email: jack@paladinregistry.com
Site: http://paladinregistry.com
About: Jack writes for the InvestorWatchdog website and Worth magazine. He worked in the financial services industry from 1976 to 2004. For twenty of those years he was the president of a Registered Investment Advisory firm and a Broker/Dealer. Jack is the author of Who's Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor and is a co-founder of PaladinRegistry.com.See Authors Posts (87) | July 3, 2009 | Bad Products & Services

Target date mutual funds are popular products because they are easy for investors to understand. All investors have to do is select a fund based on their projected retirement date.  This simple sounding product is a popular alternative in thousands of 401k plans.

Do they work as represented?  Not exactly!  As the stock market plummeted the past couple of years, investors with 2010 target-date funds experienced losses of 40% or more.  Are they still going to retire in 2010?  Not likely!  Let’s hope they still have jobs.

The Securities & Exchange Commission is investigating these funds to determine if some companies and advisors under-stated the risk of the products to investors.  As reported in the New York Times (6/25/09) disclosure policies and regulations overseeing target-date funds are opaque at best.

Senator Herb Kohl, Wisconsin Democrat and Chairman of the Special Committee on Aging, said, "At the end of the day, consumers need to know what they are getting into."  He’s right, but how many investors will commit the time to read 60-page prospectuses that were written by lawyers in six point type?

Given all of the arcane products that are out there, products that are easy to understand may seem like a breath of fresh air - especially to unsophisticated investors.  But, that doesn’t mean they work as represented by sales representatives whose main interest may be the size of their commissions.