Here are a few key areas anyone considering a target date fund should consider:
Look at the detailed components of the TDF.
In 2008, the three largest TDF 2010 funds lost between 21% to 27% of their value. Can you imagine you are 2 years away from retirement and all of sudden your nest egg lost 20% plus value?
It turns out that many TDFs even with the same target year have very different components. For instance, according to Morningstar, of all the 2030 TDFs, the range or variance of equity ownership is almost 50%. One TDF manager can have 85% equity in their TDF and another 35%. Go figure!
Also, note that TDF managers can and do adjust the holdings from time to time. For example, in summer 2015, right before the August market drop, one of the largest TDF managers increased its domestic equity by 15% on all but two of its TDFs.
Look at the expense of the TDF.
It goes without saying that the lower the expense, the higher the return to the investor. However, expenses are not everything and the lowest expense TDF doesn't necessarily mean the best fit for you. You need to consider what you are getting from the expenses - asset allocation? Asset rebalancing? Access to special investments?
Dynamic TDF is more appropriate.
Most investors who approach retirement time want their portfolios to be shielded from large losses, unfortunately, Index-based TDFs offer little to no protection against large losses, while dynamic TDFs do.