Target Retirement Funds

[Beccagold]

What are your thoughts on target retirement mutual funds? I am just starting to invest in mutual funds and so far only own 1. Am I better off researching and choosing various funds rather than the target date? Also, if you regularly invest a certain amount, do you do it equally over the different funds?

TIA!

[kv968]

Target retirement funds are a great idea for people who want decent diversification without having to do the research in choosing different funds and paying attention to their asset allocation. I think you could get a better "fit" to what it is you exactly want by building your own portfolio. Of course if you're just starting out with investing, it might not make sense to open 4 or 5 different funds for the diversification you want because you'll most likely incur low account fees until you can reach fund or account minimums. A target fund would be a good place to start until you have enough to build your own or you could just add different funds to your portfolio to compliment what your target fund already has.

If you regularly invest a certain amount, you should have an asset allocation plan set up (ie. 80% stock/20% bonds) and invest equally. Granted you'll have to go back once in a while (annually is usually good) and readjust the amounts as some funds will perform better than others. If done in a tax-exempt account, you can just move the money around. If done in a taxable account, it's best to add more money to the fund that is lacking to boost it back up to the original percentage since selling funds will generate a taxable event.

[vince]

I think target funds become too conservative over time. That is just my opinion though. I have my mutual funds diversified everytime I buy them on a monthly basis. It works for me

[disneysteve]

I think target funds become too conservative over time.

This is kind of an overly broad statement. One thing to be aware of is that the target retirement funds vary considerably from company to company in how much they allocate to stocks.

Another things is you don't have to pick the year you actually plan to retire. If you want to be more aggressive, pick a later year. If you want to be more conservative, pick an earlier year. So if you expect to retire in 2030 but want to keep more money in stocks, go for the 2040 or 2050 fund instead.

[Aleta]

We have the target retirement funds and like the automatic diversification that it offers. We're with Vanguard and in the beginning had a year that was 21 years ahead of our retirement, but Vanguard changed it's allocations and that particular year became too aggressive for us. We're getting closer to the years where we will have to preserve some of the money. So, we changed it to the funds of our year of retirement. I sure do sleep better at night. They use indexed funds and it does what the market is doing. If you are interested, go www. Vanguard.com and check out the retirement funds for yourself.
For us, it just simplified our life somewhat. I send in a certain amount and it goes into 1 fund that is diversified.

[deca]

I love the target fund concept. It's not currently offered through my 401k plan, unfortunately. I'm totally on my own to pick my fund allocation. We're setting up a SEP-IRA for DH though and planning to go with a Target Fund. We're comfortable with a little more risk though so we're choosing a target date farther out than when he will likely retire. We'll adjust that as needed as time goes by.

[scfr]

I think they are a terrific idea for someone just starting to invest in mutual funds. Down the road, when your investable assets and knowledge have grown, you will probably want to choose your own variety of funds, but the Target Retirement funds are a great place to start.

[vince]

steve you are correct that was a broad statement, my bad. I guess I am a way to agressive for target funds as I will never ever own a bond and that is where they shift most of the portfolio as they get closer to the retirement date.

[Scanner]

I like automatic funds for college vs. retirement.

College is a fairly close goal, so I can't risk becoming out of balance within 1 year or I could lose some signficant priniciple.

Retirements is such a long term goal that I prefer to build my own portfolio.

Except my silver has been yucking it up this week.

[Ima saver]

They did not have target funds when I first started investing, so I went with Vanguard Index 500 and I am pleased with it.

[kv968]

Except my silver has been yucking it up this week.

Come on now Scanner, you knew you were in for a bumpy ride when investing in precious metals At least you're still tracking upwards somewhat.

[jIM_Ohio]

target fund are excellent choices for people which want to make a desicion once (on fund selection), then not have to think about it.

[Coleroo]

a target fund has worked great for me. Im 24 and have just gotten into investing slowly over the past 3 years... specifically within the past 10 months or so. I have a target 2045 with T Rowe Price and it has done well. There is sooo much to learn! The target funds, whether they are target years (2045, as in my ROTH) or by aggression (growth, moderate, conservative as in my 403b) give me what I need - agressive investment without bogging my newlywed mind down with so many many choices! I love the ease of it. As I get older and more "investment savvy" I will probably venture out otherwise but right now its great "no-brainer" investing that guarantees im doing SOMETHING good with my money right now.

[jmjj215]

I'm a big fan of the concept. I don't plan on waiting until 2045 to reitre, but I've chosen that allocation to appropriately taken on the risk I feel comfortable with. They're cheap and they're effective.

[wellheeled]

One thing to consider about Target Retirement Funds is whether you decide to hold them in your tax-advantaged accounts (401k, IRAs, etc.) or in taxable accounts.

For tax-advantaged accounts, Target Retirement funds are a good choice if you want asset allocation and re-balancing done for you year after year, or if you are starting out and do not have the money to buy into different funds to achieve the correct asset allocation on your own.

For taxable accounts, Target Retirement funds are not the best choice, IMHO, because as the years go by the bond or fixed income portion of your TR will get increasingly larger. Bonds are generally tax-inefficient and should be placed in your tax-advantaged accounts. Also, every year when the TR is re-balanced there will be buying and selling activity, which is also taxable. It is inefficient to have TRs in your taxable accounts.