Target-Date Funds: Hidden Risks in 'Simple' Plans

It seems simple enough. You know what year you plan to retire, so you pick a mutual fund with that same date, set it and forget it.

No wonder target-date funds in 2008 had their highest year for net new cash flows -- at an estimated $57 billion. This year, cash flows are on track to set another record, accumulating at an annualized rate of $60 billion over the first seven months of 2009. In total, more than $140 billion has entered target-date funds since the start of 2007, according to Morningstar (MORN).

"Target-date funds now occupy the extraordinary position as the default investment choice for America's new retirement model," says John Rekenthaler, vice president of research at Morningstar and co-author of the firm's Target-Date Series Research Paper: 2009 Industry Survey.