September 29, 2013
What is a Target Date Retirement Fund? What questions should you ask when considering investing in one?
What is a Target Date Retirement Fund? What questions should you ask when considering investing in one?
A target-date retirement fund is a type of mutual fund investment that is made up of many assets but will automatically reset the asset mix as the time gets closer to the target date. So for example, it may start with fairly high risk assets and change to lower risk as the time get closer to retirement. A question to ask would be if this “pick all” approach is the right choice for you in your retirement investment fund.
A Target Date Retirement Fund is designed to provide you with a single fund that diversifies all of your investments in one place. You should ask yourself if you think you are going to pay more taxes now or later, what target retirement number suits your time horizon, and does my state offer a tax deduction?
Outstanding, Alayna! Let’s recap.
A Target Date Retirement Fund is a mutual fund that holds multiple asset types (U.S. stocks, International stocks, U.S. bonds, International bonds, etc.). The date on the fund is the year in which you will be ready to start accessing the money. As that date comes closer, just as Alayna stated, the fund gradually sells the more volatile assets (stocks) and buys more of the conservative assets (bonds). It rebalances on its own. You do nothing except feed the account consistently over time (dollar cost averaging).
One very big question one should ask is: What is the asset allocation currently and am I comfortable with that? The next big question is: What is the expense ratio? Vanguard provides the lowest expense ratio in the land because they use their own inexpensive index funds inside those Target Date Retirement Funds. All Target Date Funds are not the same. Do your research, ask those questions (including Alayna’s question), and run with it if it is the right option for you. Knowledge is POWER!!!!!!
Nice additions to the conversation, Katherine. You and I were typing in our responses simultaneously. The brain waves must be connecting!