Target-date funds are finally getting their moment to shine, but are they wise investments?

Once maligned and derided, target-date mutual funds were considered the domain of the lazy investor: a place to park your money and wait for it, usually until retirement age. But if target-date funds stirred up all of the buzz of an aging baby boomer snoozing in an Adirondack chair, new evidence suggests they have come a long way in the public eye since their 1994 debut.

Recent statistics point to explosive growth in the category over the last decade, with investment professionals readily recommending them to clients. Morningstar’s 2014 Target-Date Series Research Paper shows total fund assets crossed the $600 billion mark last year, a 10.5 percent jump over 2012. In the first quarter of 2014, target-date funds gathered $18 billion in new assets, bringing the total to more than $650 billion, thanks to market appreciation.

“The appeal of target-date funds is evident in those numbers,” says Jake Gilliam, senior portfolio manager and managing director at Charles Schwab Investment Management. “They can be a great long-term solution for people who want a highly diversified portfolio and professional investment management, baked in at a relatively low cost,” he says.

For the majority of investors, the appeal boils down to this: Target-date funds represent a set it and forget it investment strategy. Fund managers do the heavy lifting, while the mix of investments gets more conservative as the target date approaches.

“One of the major advantages of target-date funds is their ability to reallocate over time based on someone’s expected retirement date,” says Travis Freeman, a partner with Four Seasons Wealth Management in the St. Louis area. “I think they’re a positive addition to any 401(k) fund list. Investors just need to know how to use them and need a formal retirement calculation to determine if they are on track for their unique goals.”

To that end, target-date fund investors feel more secure, according to a 2014 white paper by Voya Investment Management that surveyed 1,017 employer-sponsored retirement plan participants age 25 or older in September 2013. When asked whether they were confident in reaching their retirement goals, 56 percent of target-date fund participants said they agreed or strongly agreed, compared with 41 percent of those not invested in target-date funds.

That likely has a lot to do with the 2006 Pension Protection Act, which made target-date funds a qualified default investment for 401(k) plans with automatic enrollment. says ReKeithen Miller, a client service manager and portfolio manager with Palisades Hudson Financial Group LLC in Atlanta. “Many companies now use the funds as the default choice for their employees, who often find inertia simpler than making an active decision about their investments,” Miller says.

“This ‘do it for me’ option is a good fit for the vast majority of the population, including defined contribution participants,” says Jeff Keller, vice president and director of DCIO sales at Stadion Money Management in Watkinsville, Georgia. “Given most participants are unengaged and thus defaulted, a product that provides an asset allocation strategy with the ability to [change over time] is a great investment vehicle for these individuals,” he says.