WASHINGTON (CN) – Target date retirement funds that include the target date in the fund’s name will be required to disclose whether the fund will be at its most conservative on that date, if a proposed Securities and Exchange Commission rule becomes final.
The information would have to be next to the first use of the fund’s name in marketing materials.
A target date fund is one marketed to investors whose retirement date is at or about the fund’s stated target date. Target date funds generally invest in a mix of asset classes, including stocks, bonds, and cash and cash equivalents, the ratio of which shifts to become more conservative-usually by decreasing the percentage allocated to stocks as the target date approaches.
The SEC states that because some funds actually have glide paths or asset maturity dates that may be as many as 30 years after the stated retirement date, investors may be misled into thinking that a fund will be at its most conservative, and therefore the least risky, at or near the date that appears in the fund’s name.
The proposed rule also would require marketing materials for target date retirement funds to include a chart or graph depicting the fund’s asset allocation over time, and a statement that would highlight the fund’s final asset allocation.
The SEC also plans to require that marketing materials indicate that a target date retirement fund should not be selected based solely on age or retirement date, that it is not a guaranteed investment, and that the stated asset allocations may change.
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