Vanguard urges target-date benchmarks

The lack of a benchmark to track target-date funds is impeding the growth of the funds, according to an analysis that will be released next week by The Vanguard Group Inc. The preliminary analysis by the Malvern, Pa.-based company, released to InvestmentNews, shows target-dated funds are one of the fastest-growing segments of the mutual fund industry with $114.3 billion in assets at the end of 2006 up from just $12.3 billion in 2001. But there's no meaningful measures for tracking the funds' progress, the report finds. In its analysis, Vanguard proposes two additional benchmarks that will help investors answer critical questions about a target date fund's performance. The first benchmark identifies the return required by the typical investor to reach retirement sufficiency and the second presents fund performance relative to the investment manager's return expectations. The goal of target-date funds is to help workers accumulate enough resources for retirement. "Existing benchmarks provide no sense of the funds' success in meeting this objective," the report says. "It is almost as if a tour guide agreed to take a traveler from A to B, but never clarified how the pair would get to B, or even precisely where B was. The traveler would be lost."