I guess I値l just leave it in the 2040 fund. I have my iRA mostly in a 2045 fund, some in a 2050 fund.
That's a safe bet for now. I'll agree with others that they get a bit too conservative down the road, but for now the L 2040 or 2050 is a good option. After the L fund drops below a 60/40, or whatever AA you would like in retirement, you can always take the funds that make up the L fund and rebalance it yourself to maintain that AA. You could also just switch to the next L fund at that time. Example: L2040 gets to conservative, switch to the L2050.
I'm 55 and will probably retire in a year. I'm 60% C 40%S. It doesn't matter what mix I have or anyone else has, what matters is what you are comfortable with. I think it's a mistake to put anything in bonds or be conservative, that's my opinion. Opinions are like assholes, everybody has one. Studies have shown that if you have something like an 80% stock and 20% bond, or is it 70% stock and 30% bond you reduce the risk of your portfolio but only slightly reduce the return compared to 100% stock. Obviously this isn't a direct quote but my point is do what you're comfortable with.
Being 100% stocks 1 year from retirement is very risky. You are correct that adding some bonds slightly drops the return, but is great for risk reduction.
The following numbers go back to the 1920s.
100% stocks. Average performance: 10.2%/yr. Worst year: -44% (-55% from peak to bottom, but that took over 1 year)
60% stocks, 40% bonds. Average performance: 8.8%/yr. Worst year: -26.5%
10+ years out from retirement that extra 1.4%/yr + compounding is worth being more aggressive, but once you are close to retirement that potential downside is a much bigger risk to your goals.
I think the better option for using L Funds is to use your life expectancy, not your retirement date, as the target date. The L Funds become VERY conservative at maturity, when they convert to the L Income Fund, which is 80%+ in bonds.
I agree with the problem, but not the solution. Your life expectancy should be decades after your retirement date, especially for people on this forum. If you used the L fund for your life expectancy your AA at retirement would likely be 85% stocks.