Setting Up Young Investors For A Triple Whammy

Target date funds, which start young investors off with a relatively risky portfolio and shift toward a more conservative profile as retirement approaches, have practically exploded in popularity in the last decade, growing from less than $100 million in industry AUM in 2004 to more than $600 million at the end of 2013 according to Ibbotson Associates. This strategy assumes young people will be able to keep adding to their TDF and ride out a rough business cycle, but unstable employment means that the theory doesn’t always work out.

“Current savings options blissfully ignore the fact the young use their 401(k) investments as their rainy day fund in case they have an unexpected and urgent need for cash. Often, this...