You’re saving for retirement, and the first thing you see is a list of fund names.
Some people freeze and put off choosing. Others look for a simple approach.
If you are in a workplace retirement plan, you may be automatically placed into an investment known as a target-date fund. You can usually recognize these because the fund names all end in a year that’s supposed to correspond with your retirement age.
“Target-date funds tend to be very attractive to investors who don’t want to consistently manage their investments,” said J. Kevin Stophel, a certified financial planner at the advisory firm Kumquat. “But consumers [generally] do too little homework when selecting a particular fund.”
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Instead of picking a bunch of funds and trying to balance between stocks, bonds, international and domestic, a target-date fund is more like one-stop shopping.
You invest in it fully, without having to think about your asset allocation. They’re attractive to investors who don’t want to have to pay too much attention to managing their investments.
These funds are created to automatically rebalance to an investment allocation that grows more conservative as one gets closer to retirement or the target date, Stophel says.
The asset allocation generally starts out more aggressive, since the investor has several decades until retirement and can ride out some bumps in the market. The nearer to retirement, the more conservative the mix of investments.