In part, "the fund companies were competing on performance rather than focusing on risk," says Nagengast. "That's fine for a large-cap growth fund, but it's the wrong goal with target date funds. As you approach your retirement date, preservation should become more important than growth."

While many retirements were no doubt put off by the 2010 results, they didn't cause people to flee or avoid target date funds. On the contrary, TDFs became even more popular. From 2007 to 2009, they grew by 30 percent, and dropped to a still-healthy 15 percent per year, says Morningstar Senior Analyst Josh Charlson. He surmises the growth drop stemmed from the fact that many participants already had shifted over to TDFs from other products and the plans are mostly getting investments from new hires with smaller account balances.

But TDFs are entrenched and likely to continue growing. While they held $44,625,438 in 2004, last year they totaled $484,796,320,070.

Of that, Fidelity, T. Rowe Price and Vanguard together dominate with a 75 percent share of the TDF market. Even though that $484 billion is about half of all retirement assets, experts believe the funds will continue to grow.

"These are the pension plans of the future," says Morningstar's Charlson.

TDFs, originally also called lifecycle funds, began to gain traction in the early 2000s partly due to heavy promotion from major companies like Fidelity, Vanguard and T. Rowe Price, says Nagengast. But they earned more widespread attention when the 2006 Pension Protection Act sanctioned them as one of only a few safe harbor investments in retirement funds. The PPA also called for employers to automatically enroll participants in some kind of retirement plan, and TDFs were a particularly attractive option. They offer access to professional money managers who rebalance and re-allocate funds on an ongoing basis, gradually shifting investments – in what's known as a glide path – from very aggressive for young employees to more conservative investments as a worker's retirement approaches.

"The genius is that we can't sit down with each participant and find out what their goals and risk tolerances are," Nagengast says. "But [plan sponsors] can put people in pools based on when they're going to retire."

TDFs also force participants to have a long-term point of view, says Morningstar's Charlson. While TDFs aren't immune to market changes, they do protect participants from their own chronic bad investment behaviors – such as buying at peaks and selling at bottoms, letting all their money languish in low-return bond funds or pouring it all into the company stock.

"Investors are probably getting better investment outcomes versus what they would likely make on their own," Charlson says.

A JPMorgan study, "Ready! Fire! Aim?", offers evidence: The median annual return for TDFs outpaced do-it-yourself portfolios by 2 percent.

"Compounded over a lifetime of investing, 2 percent per year is a considerable amount to miss out on," the report says. Worse, "the bottom performance range for do-it-yourself core menu and self-directed brokerage participants consistently lost around 5 percent each year, compared with a bottom outcome gain of a 9.5 percent annual return for target date fund investors."

There are essentially two kinds of target date funds. Some manage to the retirement date, eliminating almost all equities at that time; others manage through the retirement date, on the assumption the participant is more risk tolerant and will need extra equity growth to cover a long life span. Some companies offer a preservation fund, where participants can move their assets after retirement.

How do you choose the right TDF?

"You want to know its track record: who's the manager, and does he or she have a consistent investment philosophy," says Nevin Adams, co-director of EBRI's Center for Research on Retirement Income. "Understand the fees and how the TDF is structured."

Besides variable glide paths, TDFs have different stock and bond ratios. Some are more diversified, using alternative assets such as foreign bonds, small cap stocks and commodities to help stabilize an aggressive portfolio. Others might be more conservatively invested with plain-vanilla products.

Vanguard, true to its reputation for low-cost products uses only passive index funds and Exchange Traded Funds. Other TDFs might charge for each underlying fund as well as a management fee. T. Rowe Price, meanwhile, is known to have the most aggressive glide path of the top three, holding more equities around the target date, according to Charlson.

"Fidelity's products have middle-of-the-road glide paths and one of the longest-running TDFs in the business." Morningstar ranks 22 TDFs and might be a good place to start.