Posted 9/8/2023, 6:15:00 PM

Target-Date Funds Turn Retirees into Unwitting Contrarians

Target-date funds (TDFs) turn retirees into contrarians by automatically selling stocks when the market rises and buying when it falls.
TDFs have grown enormously, with $5 trillion now invested in them, and research shows they stabilise the stock market by offsetting panic selling in downturns.
However, TDFs also dampen market rallies by offsetting enthusiastic buying when stocks are rising.
TDFs' contrarian strategy may become less profitable as more investors adopt it, ironically causing trend-following to become more profitable.
If you don't want to be a contrarian, you may not want your retirement funds in a target-date fund.

marketwatch.com

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