Many 401(k) investors don't use target-date funds the right way

Many 401(k) investors don't use target-date funds the right way  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌  VIEW IN BROWSER | SUBSCRIBE WED, JUL 14, 2021 YOUR WEALTH Editor's Note Target-date funds have become a popular investment option within 401(k) plans. In fact, assets in TDFs rose to an estimated $2.8 trillion last year vs. $2.3 trillion in 2019, according to a Morningstar report. Target-date funds provide a simple way to save for retirement, and they offer exposure to a variety of markets, active and passive management, and a selection of asset allocation. Also referred to as life-cycle funds or age-based funds, the concept is simple: Pick a fund, put as much as you can into the fund, then forget about it until you reach retirement age. That means TDFs were designed as one-stop shops for 401(k) investors that put retirement savings on autopilot. Investors are meant to park their nest egg in one fund, generally based on their retirement year, which automatically shifts from stocks to bonds over time. However, as reported by CNBC's Greg Iacurci, many 401(k) plan investors are not using target-date funds the right way. To that point, 33% of investors aren't limiting themselves to one target-date fund, according to 401(k) data from Vanguard. These investors are piling other type of funds (like mutual funds and index funds) on top. Using the funds this way may inadvertently add more investment risk, financial experts say. It's therefore important TDF investors are aware of how other retirement investments could skew their asset allocation over time. Investors who don't rebalance could end up with more risk than they'd like. CNBC's Iacurci spoke with several financial experts and details some interesting TDF investment strategies. For more cool stuff like this, please follow me on Twitter @jimpavia and check out CNBC's Financial Advisor Hub and CNBC + Acorns Invest in You: Ready. Set. Grow. Jim Pavia @JIMPAVIA Many 401(k) investors don't use target-date funds the right way A third of target-date fund investors save money in multiple 401(k) funds, according to Vanguard data. That may skew risk over time. The IRS is sending out 4 million refunds this week to taxpayers who overpaid on their 2020 unemployment benefits Up to $10,200 in unemployment benefits was excluded from 2020 taxable income for most taxpayers. Not everyone accounted for it on their return. Are you prepared for tax impact of the $68 trillion great wealth transfer? Here are some options to reduce the bite The great wealth transfer is underway, with $68 trillion at stake. These estate-planning strategies may lessen the tax bite, according to financial experts. Inflation concerns have many retirees worried about running out of money As inflation rises, many retirees worry about outliving their nest eggs. Advisors suggest these portfolio changes for retirees to preserve buying power. Portfolio loans can be one way to make debt work in your favor. Here are the benefits and risks Depending on how much risk you can take, a loan against your investments can be a way to avoid selling assets and paying taxes on that income. The first child tax credit payments go out to 65 million kids this week. How to navigate the process The first monthly payment from the new child tax credit starts this week. Here's what families need to know about the money College plans rebound although cost remains a top concern, survey finds As the economy bounces back from the pandemic, most parents say their child's college plans have returned to what they were pre-Covid. If you plan to quit during the 'Great Resignation,' here's what career experts say you need to do A whopping 95% of people say they may quit their jobs in the post-pandemic "Great Resignation." Yet before you do, career experts have this advice. Post-pandemic, the office will now have a whole new look As employers make plans to combine remote and on-site work arrangements, many are embracing a shared workstation system. Community "If you're observing some sort of bizarre activity in the stock market that leaves you scratching your head ... the answer to the riddle is most likely to be 'community' ..." CONTRIBUTORS Sharon Epperson @sharon_epperson Josh Brown @ReformedBroker Unsubscribe Manage Newsletters Terms of Service Join the CNBC Panel   Digital Products Feedback Privacy Policy CNBC Events   © 2021 CNBC LLC. All rights reserved. A property of NBCUniversal. 900 Sylvan Avenue, Englewood Cliffs, NJ 07632 Data is a real-time snapshot *Data is delayed at least 15 minutes. Global Business and Financial News, Stock Quotes and Market Data and Analysis. Data also provided by THOMSON REUTERS