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A Harsh Appraisal
The article, by Massimo Massa, Rabih Moussawi, and Andrei Simonov, fiercely criticizes its subject. The authors find that target-date funds underperform other funds to a staggering degree. This shortfall occurs because target-date funds exploit their relatively captive audiences, which are unlikely to punish subpar returns by redeeming their shares. For a similar reason, target-date funds also get away with fee skimming.
I agree with the authors initial assumptions. They are correct that target-date funds have unusually loyal shareholders who are relatively insensitive to both performance and costs. It is also true that those who promote target-date funds by which I mean not only fund companies, but also 401(k) sponsors, consultants, and the media have counseled target-date investors to invest for the long run. They have been instructed not to sweat the details. Finally, it is true that most target-date fund lineups have closed structures, meaning that th