By Jean Chatzky
FORTUNE – More than 51 million Americans have an active 401(k) retirement account, according to the Investment Company Institute. And if recent statistics from Vanguard hold across the category – more than half have at least some of their money in a target-date fund. That's a lot of dough and it's growing fast. According to BrightScope, target-date fund balances overall hit $500 billion in assets in 2012. The company is estimating them to reach $2 trillion by 2020.
In many ways, that's a good thing. That shift has tempered the bi-polar tendencies of many 401(k) investors. According to Vanguard, 10 years ago, 13% of their self-directed 401(k) investors held no stocks and 22% held only stocks. No matter how you slice it, those investors were taking too little or too much risk. Last year those numbers dropped to 10% and 13%, respectively – a result, at least in part, of making TDFs the default option on many retirement plans.
I've been a proponent of TDFs over the years. I like the way they help humans who say they are going to rebalance their portfolios but never seem to get around to it stay at least in the vicinity of the track. Which is not to say I think they're perfect.
TDFs aren't baskets of stocks and bonds, but funds comprised of other mutual funds – from a single mutual fund family. Therein lies the problem says Financial advisor Tim Maurer, director of personal finance for the BAM Alliance. "Very rarely," he says does any one fund family have the one of the best funds for every given asset class. He argues that if you're willing to put in even a few hours of time ("you may have to read a book," he notes) you should be able to put together a better portfolio for your specific needs.
That said, if you're going the TDF route, thinking about going the TDF route, or suspect you're on the TDF route, having taken no actions whatsoever, here are a few questions you should ask about your fund options.
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