Names can be misleading:
*Dollar stores sell some items costing more than a dollar.
*Penny stocks usually sell for more than pennies.
*The Golden Gate Bridge isn’t golden. (It was named for the Golden Gate Strait, the entrance to San Francisco Bay from the Pacific Ocean.)
Mutual fund names can be misleading, too, though the Securities and Exchange Commission has basic rules to assure accuracy in giving them stock, bond, sector or region names.
But that does not stop the creativity.
Who wouldn’t love to invest in the Total Return Absolute Return Strategic Real Advantage Fund?
It doesn’t denote any investment style, so it can be whatever you imagine. And it sure sounds good. Besides, such generic names are not uncommon in the world of mutual funds.
But it is the “target fund” moniker that has caused the most consternation in recent years.
Target funds are designed to aim a long-term investor on a path toward a cutoff date, particularly retirement. Investments are adjusted as the target date nears, generally keeping the portfolio more heavily in stocks early and then shifting toward fixed-rate investments.
Target funds, sold by many investment and mutual fund companies, are for investors who don’t want to worry about keeping track of their holdings. Just let them roll until retirement, and those running the portfolios will do the worrying and adjusting for you.
But a not-so-funny thing happened on the way to retirement.
The financial and market debacle of 2008 slammed those funds hard, which was especially painful for investors entering the final lap before their target date.
The downturn starkly dramatized the fact that target funds vary in composition and performance. The name may be generic, but results are not.
The SEC is examining target funds and may be suggesting new rules to clarify investment strategies for each fund.
These problems should indicate something even more important:
Always examine what a fund you’re considering is investing in. Doing otherwise is courting disaster.
— Andrew Leckey, Tribune Media Services
