Some investors are turning their backs on target-date funds, the most popular retirement investment on Wall Street, write Anne Tergesen and Oyin Adedoyin for The Wall Street Journal.

Target-date funds are a long-term, professionally managed stock portfolio that recalibrates the mix as we race toward retirement age. According to Vanguard data, these funds currently attract 64 cents of every dollar that is put into 401(k) plans and hold trillions in assets.

Target-date funds represent the default choice for many retirement savers who are enrolled in 401(k) plans automatically.

However, there are those who are shunning target-date funds for a variety of reasons. They often have an issue with paying the fees these funds charge, as target-date funds cost 0.68 percent annually, on average.

Others believe that the one-size-fits-all approach offered by target-date funds does not work after they achieve certain financial and life milestones. For example, retirees sometimes decide to retool their portfolios to purchase investments that generate income such as dividend-paying stocks.

Meanwhile, others want a more aggressive strategy than what’s being offered by their target-date funds.

Brooke Hurley decided to move all of her 401(k) money into low-cost stock index funds from target-date funds. Her aim was to have more money invested in the stock market.

“Having 10 percent in bonds now doesn’t sound like much,” said the 24-year-old. “But it was a red flag to me.”

Despite the detractors, though, the majority of Americans still embrace target-date funds.

According to David Stinnett, head of strategic retirement consulting at Vanguard, one of the main reasons is that they offer age-appropriate asset allocation combined with automatic rebalancing that can help spare investors from making mistakes that can result in them missing out on returns or taking on too much risk.

Fred Hubler, the CEO and Chief Wealth Strategist at Creative Capital Wealth Management Group in Chester Springs, believes target-date funds should be used sparingly.

“Most investments have a specific purpose, and target-date funds are best suited for clients seeking a ‘set it and forget it’ approach within a single portfolio,” he said. “We also utilize them in 529 plans to gradually reduce equity exposure and risk as the beneficiary nears college age.”

Hubler emphasized that a tailored investment strategy is typically more beneficial for most clients, especially those with higher net worth.

“We often find that mutual funds, including ETFs, are not the optimal choice for these investors,” he said. “While mutual funds were designed to provide small investors with access to diversified portfolios, they may not offer the level of control and customization required by high-net-worth individuals. We believe a more personalized approach can deliver better results with less risk.”

Read more about target-date funds in The Wall Street Journal.

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