October 13, 2013 Admin | October 13, 2013 Target Date Retirement Funds are all different. What should you focus on when considering investing in one?
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You should focus on investigating all of your options before investing your money. You should also consider the expense ratio. Vanguard provides the lowest expense ratio.
In addition to considering the expense ratio you should also look at the makeup of the fund. Compare the balances to your tolerance for risk. You don’t have to necessarily match the retirement target date to your intended retirement date.
Well said, ladies. I think Karen covered the issue very effectively as she discussed the issue beyond fees. Let’s recap.
1. Focus on fees and that means identifying Target Date Funds that contain index funds. Vanguard does this better than anyone else. Keep your yearly expense ratio under .2% and you will be far ahead of the crowd. Most of the Vanguard Target Date Funds run around .16% and .17%.
2. Target Date funds are different. Even when they have the same year attached to them, the actual asset allocation can vary in small and sometimes not so small ways. Again, Vanguard does this better than most by skewing the allocation a bit conservative over time. More bonds and less stock for example.
3. Rather than matching the year to your retirement date, match it more toward your time when you will actually start receiving that particular amount of money. Example: You are 45 and you are expecting to retire at 67. You could select the Target Date 2035 Fund (the year 2013 + 22 years), but you may not actually access that money until age 77 because of other money you will access (Social Security, pension, IRAs, taxable accounts, home equity, etc.) . In this case you may select a 2045 fund. Karen had right. Understand the number, but don’t use it as the precise measurement when selecting a particular target date fund.
BOTTOM LINE: Focus on the lowest fees (Vanguard) and no commissions (Vanguard again) when investing with target date funds. Learn about them, get in the weeds a bit, and make the best decision that fits your particular situation. Take control!!!!!