In these skittish markets, it’s difficult to tell which direction equities will go on any given trading day, much less make a longer-term forecast. In the short term, the market is so driven by the news cycle that the media has the power to push an otherwise positive trading session into negative territory. Beyond that, most classes of bonds have been severely overbought during the past two years because income hungry investors were willing to accept paltry yields in exchange for a margin of safety.

In this environment, many investors have taken a set-it-and-forget-it approach to their portfolios by relying on target-date funds. According to Ibbotson Associates, investors parked $6.3 billion in target-date funds during the third quarter alone.

Unfortunately, target-date products are more complex than many investors might assume. Most investors purchase target-date funds by selecting the fund whose target date coincides most closely with the time they actually plan to retire. As these funds approach their target dates, many of them adjust their asset allocations to a less aggressive posture so investors’ money is in the least risky asset classes upon retirement.

But there are actually two very different philosophies behind managing these funds: managing to retirement and managing through retirement. Under the managing to retirement philosophy, funds reach their most conservative postures at their target date. The assumption is that investors presumably have already saved large nest eggs that will produce sufficient income to carry them through their golden years.

The managing through retirement philosophy assumes that few people actually set aside enough money to make it through retirement on income alone. Because they’ll need their assets to continue growing past their set retirement date, these funds will actually reach their most conservative allocations well beyond their target dates.

In the wake of the financial crisis, target-date funds received unfavorable attention due to the fact that most investors didn’t understand that these two different philosophies existed. A number of investors who had assumed their funds would be at the most conservative points in their allocation cycles lost money because their funds were actually allocated toward more aggressive fare.

This widespread confusion on the part of investors is understandable. With only a few exceptions—Oppenheimer and TIAA-CREF market their target-date products with clarity about their approach—most fund companies don’t announce their operating philosophies in the names of the funds themselves. If an investor didn’t read the prospectus of the fund they purchased, their brokerage statements were likely unwelcome surprises by mid-2008.

If you’ve ever considered investing in a target-date fund, you should always make sure to understand how they are managed. Among the major fund companies, target-date products offered by Fidelity, T. Rowe Price and Vanguard all manage through retirement, so they won’t reach their most conservative stances until several years after retirement. In contrast, American Century’s LIVESTRONG funds are managed to retirement and should be at their most conservative allocations upon their target dates.