Asset allocation of the 2010 target date funds.

Target date funds are under scrutiny by Washington because apparently the 2010 funds from different fund families (Fidelity, T Rowe, Oppenheimer) took a 40% dive in 2008. Most of the target date funds were heavily invested in stocks instead of bonds and cash despite being so close to the target date (2010). The fact of the matter is that 2008 has been an ugly year for all funds out there. Even pure income/bond funds have been hit hard. Bonds are safer than stocks but they are not risk free. Even money market funds carry some risk. The 2008 meltdown has effected stocks and bonds equally. The only safe place is "cash". Below are some of the year to date asset allocation numbers for 2010 funds from different fund families.

TRRAX (T.Rowe 2010)

Cash 43.83%
Stocks 34.47%
Bonds 21.12%
Preferred 0.16%
Convertible 0.08%
Other 0.34%

JSWSX (JPMorgan 2010)

Cash 9.51%
Stocks 40.88%
Bonds 48.71%
Preferred 0.11%
Convertible 0.01%
Other 0.77%

FFFCX (Fidelity 2010)

Cash 11.37%
Stocks 50.17%
Bonds 35.64%
Preferred 0.22%
Convertible 0.12%
Other 2.49%

VTNEX (Vanguard 2010)

Cash 2.57%
Stocks 52.23%
Bonds 44.42%
Preferred 0.05%
Other 0.73%

OTTAX (Oppenheimer 2010)

Cash 8.15%
Stocks 61.48%
Bonds 29.12%
Preferred 0.05%
Convertible 0.01%
Other 1.19%


JP Morgan 2010 is the only fund with more bonds than stocks in 2009. Even though T.Rowe 2010 is more invested in stocks, it has the highest cash position (which I like), the 44% cash position offsets any risk the 35% exposure to stocks entails. The folks at T.Rowe have it right. When you are closest to your target date, most of your money is allocated to the safest medium "cash".

I did hate to be the owner of OTTAX, VTNEX right now. Unless, you are a raging nursing home equity trader, you are SOL with that kind of asset allocation so close to the target date. I guess the fund managers are trying to make up for the 2008 losses in HOPES of a 2009 recovery and have therefore invested in stocks so late in the game (close to 2010). The ethical question they are facing is whether they should stick to the asset allocation ratio they were supposed (as dictated by the fund prospectus) or should they deviate from it so as to make up for the unprecedented 2008 losses. In the end, its all about making money for the investors, however HOPE was not the sentiment I was looking for in professional money managers.