Tom Meaglia, ChFC®

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November/December 2018

Target Date Funds

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Target date mutual funds, also known as lifecycle funds, make investing easier. They’re also popular. According to the Investment Company Institute, target date fund assets grew to $1.1 trillion by the end of 2017, impressive for a mutual fund* type that was barely known two decades ago. Here’s a look at these funds’ pros and cons.

What They Do
Target date funds offer investors diversification among different asset classes through professionally designed asset allocation** models considered appropriate for a narrow date range. This results in shareholders retiring in five years having a more conservative investment mix than those with longer-term retirement targets, who have time on their side to help mute the effects of volatility.

Among their typical features are automatic asset allocation that changes as your target date nears and automatic rebalancing to keep your portfolio mix of stocks, bonds and cash equivalents structured to address a future date. Its returns, however, are not guaranteed, so you should consider the fund’s asset allocation over its entire timeframe.

Who They’re For
While target date funds have these advantages, they are not for everyone. One safeguard investors should take is to monitor “asset creep,” which is when similar assets from multiple investments misalign your asset allocation. It may be best to limit similar investments so that the fund’s asset allocation is the same as your total mix. Target date funds may also invest in other mutual funds, and fees may be charged by both the target date fund and the underlying mutual funds.

Ultimately, a target date fund may not be right, for example, for a near-retiree who is more aggressive than average or an extremely conservative young worker. Talk to an advisor to learn more.

*You should consider the fund’s investment objectives, charges, expenses and risks carefully before you invest. The fund’s prospectus, which can be obtained from your financial representative, contains this and other information about the fund. Read the prospectus carefully before you invest or send money. Shares, when redeemed, may be worth more or less than their original cost.

**Asset allocation won’t guarantee a profit or ensure against a loss, but may help reduce volatility in your portfolio.


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