Target date funds are also good for DIY investors , because they are a more comprehensive strategy than picking on past performance, which is the way do-it-yourselfers often pick investments .
Target date funds are neither good nor bad . After reviewing the target date fund and your own situation you can decide whether a target date fund is the right choice for you or not.
This appeals to average investors because they can set up their 401 (k), regularly contribute , and let it do its thing and grow until retirement. According to behavioral scientists, good stories sell.
When we were reading we ran into the question “Why target date funds?”.
One article stated that target date funds (TDFs) mix several different types of stocks, bonds and other investments to help you take more risks when you’re young, and gradually get more conservative in your investment strategy over time. Simply put, target date funds help take the guesswork out of saving for retirement .
When I was reading we ran into the question “Should you invest in target-date funds?”.
Target-date funds provide a simple way to save for retirement . They offer exposure to a variety of markets, active and passive management, and a selection of asset allocation. Despite their simplicity, investors who use target-date funds need to stay on top of asset allocation, fees, and investment risk.
Since target-date funds can offer a lot of diversification own their own, it can be a good option for employees starting a new job. Even if you’re maxing out your 401 (k), if you have a handful of funds, the amount allocated to each might be quite small.
Should you invest in Vanguard target-date funds?
That may be fine for some, but in my opinion, no one fund family is good enough to warrant this limitation .
Another frequently asked inquiry is “What happens to target-date funds in a rising-rate environment?”.
In a rising-rate environment, a target-date fund that’s getting closer to your target retirement age would automatically move toward bonds and other more conservative investments, without considering the full impact to your portfolio.
What are the different types of target date funds?
There are two types of target-date funds from which you can choose: target date and target risk. A target-date fund operates under an asset allocation formula that assumes you will retire in a certain year and adjusts its asset allocation model as it gets closer to that year.
These types of funds tend to be on the more conservative side and contribute to a balanced portfolio. On the other hand, goals-based target date funds aim to achieve specific outcomes and may be more likely to be associated with growth and income generation.
What is a through retirement target-date fund?
A “through retirement” target-date fund will reach its most conservative asset allocation after your target date. This can make them a little riskier, but they may also continue to generate larger returns in retirement because of this.
Target-Date Funds : An Overview Target retirement funds are designed to be the only investment vehicle that an investor uses to save for retirement. Also referred to as life-cycle funds or age-based funds, the concept is simple: Pick a fund, put as much as you can into the fund, then forget about it until you reach retirement age.
Should you change your target-date year for retirement?
As you near retirement, your fund “glides” from being growth-oriented to being more conservative. If the asset allocation of your chosen year isn’t in line with your personal risk tolerance, than you can invest in your own mix of funds , or pick a different target-date year.