401(k) losses? Get your money back

Target-date funds, a.k.a. life-cycle portfolios, were supposed to be the easy way to invest safely for retirement: They offered instant diversification across asset classes in an age-appropriate blend that gradually grew more conservative as you moved closer to retirement. And 401(k) investors have flocked to them.

But the funds haven't lived up to their promise. Over the past year the average 2030 life-cycle fund, designed for fortysomething investors, has lost 40%. Worse, the average 2010 portfolio is down 30%, with the most aggressive versions off 40% or more - heart-stopping losses for anyone just a year away from retirement. Says Stacy Schaus, senior vice president at Pimco: "It turns out target-date retirement funds were far more volatile than most people realized."

Well, yeah. It seems there's little consensus among fund companies about the right mix of investments for retirement savers at different ages. Portfolios with the same target date often have wildly different allocations. So you have to determine your ideal blend yourself (for help, see our asset allocator). Then check the prospectus and shareholder reports to see how your target-date fund is invested. If the mix isn't right for you, switch to a fund that is.

As you approach gold-watch time, look beyond your target- date fund. The bottom line, says Pamela Hess, Hewitt's director of retirement research: "When retirement is 10 years away, target-date funds may not be the right place anymore."

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