Target Funds: Keeping Retirement in your Sights

How a target retirement fund can help simplify your retirement plan.

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Most of us have a lot on our minds. Kids, college, bills, cars, medical expenses, job related stress, retirement, and on the rare occasion we have time: hobbies. But what if there was a simpler way to manage at least one of the daily stresses mentioned above?

Imagine a retirement fund that you could design to identify what year you wanted to stop working and invested your money to reflect your stage in life. The fund would be carefully crafted to be a bit more aggressive early on and gradually become more conservative towards your retirement date, all the while remaining diversified enough to keep volatility relatively low. The mutual fund industry has introduced just such a fund, and it’s turning a lot of heads.

It’s called a target retirement fund and it’s growing in popularity as more and more investors look to simplify their life and their investments. According to an article online from Kiplinger’s Personal Finance, money in target retirement funds doubled in only two years from late 2002 to late 2004.

The concept is fairly simple. You pick a year you want to retire and your job is basically done. The target retirement fund does the rest. Staggered by five year increments, fund companies now offer these specialty funds to help simplify investors’ retirement plans and help them diversify their portfolios while keeping them balanced.

More and more companies are offering target retirement funds as an option in 401(k) plans and they’re now available to pick up in your IRA. Some of the most well known fund companies in the U.S. are offering the target funds. Each target fund varies from company to company, so it’s best to sit down with a financial professional to discuss what the pros and cons of each fund are, and to decide on the best overall strategy when investing in target retirement funds. Each fund itself also has a different strategy on how to manage your investment. Some are more aggressive, others are more conservative. Some funds want more personal information and others want less. Fees are also different for each fund, as are initial minimum investment amounts.

Most experts however, are quick to point out that target-retirement funds are only for a specific type of investor. If you’re only planning to put a small percentage of your investments into target funds, then you lose one of the biggest perks of having it to begin with: diversification. You may find yourself with other investments which aren’t nearly as diversified and balanced, and in the end, you may end up defeating the purpose of the target funds, which is to reduce volatility while still performing consistently.

Many young people are drawn to the funds because of the ease and simplicity they offer, which allows  them to focus on other things. The overall convenience of the fund is considered one of its biggest pros.

In the end, it always depends on personal preference when it comes to investing for your retirement. The  retirement target fund offers a myriad of benefits that may make planning for retirement that much easier and allow you to spend more time on things like your family and hobbies.

Make sure you consult with a financial professional for more information on target retirement funds. A professional will help you find solutions to plan for your retirement. They’ll also help set your sights on enjoying life after work and keep you right on target.