Target Retirement Funds, Worth It?
For retirement asset management, there are so many investment options for the average shareholder.
From small capitalization stock funds to money markets, new people investing in the market will find themselves buried in the details.
How does one pick the right funds to save for his or her retirement? Today, mutual fund companies are providing retirement specific investment options.
Instead of hiring a personal asset management consultant or relying on books and literature, investors can now turn to funds that will do it all.
These funds are often coined as "targeted retirement funds".
Under one mutual fund, you'll find a collection of varying investments that are intended for retirement.
Large mutual fund companies such as the Vanguard group and Fidelity are vying to save you time and money by offering a one-fund option to address all of one's retirement needs.
Do these "target retirement" funds actually help people in their retirement planning?Some financial analysts argue that there are tremendous advantages to these one-stop shop funds.
Others, however, do not feel the same way.
Let's begin with the advantages.
Target retirement funds provide investors ease of use and simple asset allocation based on age and risk tolerance.
The mutual fund companies provide pre-selected retirement funds so that the investor does not have to choose.
A fund for younger retirement investors could have an asset allocation mix of 60% in stock funds and 40% in bond funds.
The stock allocation could be broken down to varying index portfolios, large capitalization stock funds and more.
As one can see, the mutual fund company will choose which type of investment that a person will own, not the investor.
Thus, a retirement investor does not have to think about their portfolio with a target retirement portfolio.
The shareholder would merely need to purchase the fund for an IRA or 401(k).
Another advantage with target retirement funds is the consistency.
In instances of market downturns, you know that your portfolio will be like a rock.
There's a portion of the fund that is invested in debt instruments and it will not change.
Knowing that the fund will maintain its asset allocation has its advantages since you won't need to worry about devoting part of your assets for market corrects and downturns.
But do target retirement funds really benefit the consumer for the long run in asset management?A number of analysts have been arguing that target retirement funds may not be advantageous.
One of the biggest concerns is that the funds are allocated too conservatively.
For the young investor that we mentioned, there's still a significant portion of the fund's allocation in bonds.
This may be great to weather the downturns of the market.
However, how often do we have long downturns?Even for stock investors, downturns are temporary and there's no reason why an investor will lose out in these conditions for the long run.
Moreover, individuals are living longer.
With conservative allocation mixes, less money will be available during retirement.
Since bonds and cash reserves (conservative investments) provide lower returns, retirement dollars may not be able to stretch over the long run.
Target retirement funds could be not as helpful since they don't account for your total financial situation.
It's possible that a shareholder might have a large nest egg.
If so, then it would not take account of these assets and may overestimate risk for the shareholder.
Target retirement funds for asset management may offer convenience and simplicity for retirement.
However, there are some drawbacks that one needs to understand so that he or she can make the right decision.
From small capitalization stock funds to money markets, new people investing in the market will find themselves buried in the details.
How does one pick the right funds to save for his or her retirement? Today, mutual fund companies are providing retirement specific investment options.
Instead of hiring a personal asset management consultant or relying on books and literature, investors can now turn to funds that will do it all.
These funds are often coined as "targeted retirement funds".
Under one mutual fund, you'll find a collection of varying investments that are intended for retirement.
Large mutual fund companies such as the Vanguard group and Fidelity are vying to save you time and money by offering a one-fund option to address all of one's retirement needs.
Do these "target retirement" funds actually help people in their retirement planning?Some financial analysts argue that there are tremendous advantages to these one-stop shop funds.
Others, however, do not feel the same way.
Let's begin with the advantages.
Target retirement funds provide investors ease of use and simple asset allocation based on age and risk tolerance.
The mutual fund companies provide pre-selected retirement funds so that the investor does not have to choose.
A fund for younger retirement investors could have an asset allocation mix of 60% in stock funds and 40% in bond funds.
The stock allocation could be broken down to varying index portfolios, large capitalization stock funds and more.
As one can see, the mutual fund company will choose which type of investment that a person will own, not the investor.
Thus, a retirement investor does not have to think about their portfolio with a target retirement portfolio.
The shareholder would merely need to purchase the fund for an IRA or 401(k).
Another advantage with target retirement funds is the consistency.
In instances of market downturns, you know that your portfolio will be like a rock.
There's a portion of the fund that is invested in debt instruments and it will not change.
Knowing that the fund will maintain its asset allocation has its advantages since you won't need to worry about devoting part of your assets for market corrects and downturns.
But do target retirement funds really benefit the consumer for the long run in asset management?A number of analysts have been arguing that target retirement funds may not be advantageous.
One of the biggest concerns is that the funds are allocated too conservatively.
For the young investor that we mentioned, there's still a significant portion of the fund's allocation in bonds.
This may be great to weather the downturns of the market.
However, how often do we have long downturns?Even for stock investors, downturns are temporary and there's no reason why an investor will lose out in these conditions for the long run.
Moreover, individuals are living longer.
With conservative allocation mixes, less money will be available during retirement.
Since bonds and cash reserves (conservative investments) provide lower returns, retirement dollars may not be able to stretch over the long run.
Target retirement funds could be not as helpful since they don't account for your total financial situation.
It's possible that a shareholder might have a large nest egg.
If so, then it would not take account of these assets and may overestimate risk for the shareholder.
Target retirement funds for asset management may offer convenience and simplicity for retirement.
However, there are some drawbacks that one needs to understand so that he or she can make the right decision.
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