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Managing your retirement savings can require a lot of knowledge and decisions. Lots of folks don’t want to worry about which funds to be invested in, and what asset allocation is best for them. If that sounds like you, a target date fund might be right for you. They’re very popular because they are easy. You can just put your money in one fund, and you’re done.
Each fund is identified with a year, and generally you would be picking a fund that corresponds to the date when you plan to retire. The way the investments are made in the account, the closer you are to the target date, the more conservative the investments become. The further you are from the target date, the more aggressive the investments will be.
If you are considering a target date fund, there are a couple of things to figure out:
- What is the fund’s stated end-game strategy? The prospectus has a graph called a glide path, with planned asset allocation across the life of the fund. Look at this and see if it works with your plans, and will it continue to work throughout your lifespan. Is there a point at which you want to get out of the target date fund?
- What are the fees and costs? Retirement is a long-term horizon for most people. Even slightly higher fees can really make a big difference over time.
- There can be big differences in the returns of different target date funds. Even though they are using similar broad asset allocations, the more specific assets can vary a lot.
Target date funds can be a good choice, but don’t let their simplicity allow you to become complacent and not learn about your investments. You’ve still got to be sure that the fund is right for you.
- Why target date funds may not have the best money managers
- What is a “fund of funds?”
- Why target date funds are good for folks who are just beginning to invest
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