Gen Z poured millions into the top-performing target-date funds. Even in the best cases, it didn’t go well.

The value proposition of a target-date fund is a compelling one — start investing for your planned retirement year, and let the fund adjust its risk along the way. But this year, Gen Z has learned the hard way that they sometimes come with big losses.

Indeed, all of the best-performing target-date funds for those retiring after 2065 notched year-over-year losses in the double-digits and an average one-year loss of more than 20%. Furthermore, every one of the best-performing funds in this category (see the top 10 list below) posted losses greater than broader index trackers, according to Morningstar data.

For comparison, the SPDR S&P 500 ETF Trust, or SPY, notched a one-year loss of 15.23%, while the SPDR Dow Jones Industrial Average ETF, also known as DIA, had a loss of 13.41%, over the period, according to Morningstar data. In bonds, the iShares Core U.S. Aggregate Bond ETF, also known as AGG, had YTD and one-year loss of 14.30%. 

But that doesn’t mean Gen Z investors should lose hope. Because of their long-term investing lens, this category of target-date funds is indeed the most aggressive of the bunch, devoting relatively small percentages of their allocations to fixed-income, according to Jeff Elvander, certified financial analyst and Chief Investment Officer at NFP Retirement in Aliso Viejo, California.

“Gen Z is still a long way from retirement, so any losses from the current market pullback will be more than made up over the next 20-30 year time period,” he said. “The trick for Gen Z will be their ability to stay invested, as current market volatility may well be more protracted than what they’ve witnessed with past drawdowns.”   

Although their losses may be alarming for a novice investor, Elvander says it’s all a matter of how you look at the numbers. “Now is the time, while asset levels are down, to continue investing, or dollar cost averaging, into these strategies so they can be well prepared for when the next bull market occurs.”  And he…

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