In that interview, Roger offered a very intriguing idea when it comes to target-date funds.

He suggested that while there might be justification for younger retirement savers to use a generic target-date investment philosophy, as an investor ages a target-risk investment philosophy makes more sense.

Let’s explore why this approach appeals to the intuitive sense.

First let’s tackle the state of mind of younger retirement savers. Often, they aren’t even aware of the importance of saving for their retirement.

It’s not because they’re dull, it’s mostly because there are a lot of competing priorities and not a lot of money to go around addressing those priorities. Early on, there are student loans.

Then, in some seemingly more random order, there’s a home mortgage, the costs of getting married, and the costs of raising a family.

With budgets tight, there’s no need for the young retirement saver to get too fancy when it comes to investing their retirement savings.

For all the problems associated with target-date funds, those with target dates forty to fifty years in the future should all be nearly fully invested in equities.

Setting aside what kinds of equities they invest in, the important thing is that they’re nearly fully invested in equities. End of story.

So, TDFs do have merit for these younger investors. At this point in their lives, a “one-size-fits-all” “set-it-and-forget” approach fits neatly within the mesh of all their other financial priorities.

Things begin to get a little bit more complicated as one ages.

With a decade or two of adulthood under their belts, not-so-young people tend to have accrued enough varied financial experience that it becomes apparent one size no longer fits all. Two big savings goals consume most of their thinking: retirement and college.

This doesn’t mean they can ignore short-term cash flow needs. In brief, life gets a lot harder.

As life gets harder, as peoples’ situations branch off along a spectrum ranging from “well-to-do” to “scraping-by,” it no longer remains valid to accept a generic date-based investment philosophy. These middle-aged folks find themselves and their financial needs transitioning to a risk-based strategy.

In other words, your date of birth matters less than the present value of your net assets and the future value of your current cash flow.

You can easily imagine where two different fifty year-olds with two different financial charts. One, who is relatively wealth and well prepared, needn’t take undue risk. The other, who is relatively poor and less prepared, has a return required that demand more risk.

Same age, different portfolio.

A target-date fund is simply a non-starter in this situation. In fact, it’s not in the best interests of these two investors to even offer them something labeled as a “target-date” fund.

Such an offer falsely implies only their age--not their personal financial situation--is all they need to know when selecting an “appropriate” investment for their retirement savings.

Notice how I snuck the phrase “best interests” in there. That’s right; the use of target-date funds may soon become an important fiduciary issue.

When that occurs, you can expect we will begin to see a “civil war” of sorts between these two competing investment philosophies.