A couple of years ago, target-date funds were really popular. Then, the market crashed in 2008, and people found that target-date funds were riskier than they thought. So, are they a good choice?

Let's start by discussing what they are.

Before target-date funds were created, people were told to invest a certain percentage of their money in stocks, and the remainder in bonds. Then, they were supposed to adjust it as they got older. For example, one rule of thumb was to invest 100 minus your age in stocks. So, a 20 year old would be in 80% stocks / 20% bonds. A 60 year old would be 40% stocks / 60% bonds.

But, Wall Street is always looking to create new products to sell to investors (for fees, of course). They saw that Congress was concerned that people weren't saving enough for retirement. So, they created target date funds, which was supposed to make investing even more easier.

All people had to do was buy the fund that is named after the year they plan to retire. The fund managers would automatically adjust the asset allocation as the years passed by. However, they did not work very well for those about to retire.

In fact, the evidence shows that target funds were not run very scientifically because, if they were, you would think that all target funds from different companies, but for the same year, would have similar percentages of stock. However, according to Morningstar data, during the 2008 crash, different 2010 target-date funds were holding wildly varying stock percentages. They ranged from 27% up to 67%.

During congressional hearings, critics blamed the higher stock percentages on the funds trying to boost their returns, so they would be attractive to employers - who would add them to their 401k plans.