Tale 1: Target-date funds rebalance constantly.

Some target-date funds rebalance only twice in a decade; others every quarter. Read the fund’s prospectus to find out the frequency of the fund’s adjustment. Each TDF trails a glide path aimed at securing one’s retirement date. All holders must focus on whether the fund transitions out of equities and into steady investments.

Tale 2: All TDFs are the same.

Definitely not. These funds are comprised of different asset classes; this, exposing an investor to various risks. Again, read the prospectus to find out if it suits your investment technique. Certain TDFs invest in risky assets such as derivatives.

Tale 3: You maximize the usage of TDFs.

It’s the other way around. An American Benefits Council survey showed many employers allocate only 3% to 4% of a worker’s income to its 401(k). On the other hand, you can consider raising the amount you contribute. One can pay up to $18,000 to a 401(k) this year, and $24,000 if you are 55 or older.

Tale 4: TDF is all you need.

Sure, these funds are great investment vehicles for retirement. But it might not be able to deliver everything you need. For the third time, read the prospectus to determine if the fund can fulfill your overall investment plan (in terms of retirement). Look for other options as well. Who knows? That may be worth giving a shot!

Tale 5: No need to keep track of asset allocations

TDFs are often projected as "set it and forget it" investment products. That may be true, but it never hurts to monitor your investments. But it does not mean any investor should throw their TDFs away and invest somewhere else in case the fund fails to fulfill what it promises. Changes to an asset allocation should be anchored on an investor’s events in his life, not on the overall market movement.

Tale 6: Forget the fees.

Remember, TDFs are actively managed, meaning a professional is responsible for adjusting asset allocation regularly based on the holder’s age. You need to pay for that, of course. Also, other charges may be linked to your 401(k). It is imperative to read your 401(k) plan documents and prospectuses for TDFs and other funds to figure out the amount levied by the management for such adjustments.