Hitting Your Investing Target

If you lack the time to allocate your retirement plan assets on your own, target-date mutual funds* may be an option for you. Similar to age-based, lifecycle and target-risk funds, target-date funds are designed to follow an investing path that changes when risk tolerance and time horizons change.

Popular Choice

The 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2016 report from the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) found that three-quarters of 401(k) plan participants studied had access to target-date funds and 21% of assets were invested in them. While some people may associate these funds primarily with older employees, the analysis found that about half of the 401(k) assets of participants in their twenties were invested in target-date funds at the end of 2016. About 18% of those in their 60s invested in target date funds.

Pros and Cons

In a world where time is a commodity, target-risk funds do the work for investors. These funds are typically identified by the target retirement year. For example, a 2025 fund is for near-retirees, a 2060 fund is for younger investors and there are a host of options in between. Generally, they start with a balanced portfolio that may include stock and bond mutual funds, and that mix becomes more conservative as the target date nears. Target funds rebalance automatically, which is another convenient feature. Bear in mind, the principal value in a target date fund is not guaranteed at any time, including at the target date.

While this automatic approach to retirement investing has its advantages, it may not be right for every investor. If you plan to retire much earlier or later than normal retirement age, which is currently 67 for most workers, the fund’s asset allocation may not fit your time horizon. Another potential disadvantage is that you still need to integrate target funds with other retirement investments to ensure you remain on track. Your financial professional can tell you more.

* Investors should consider the investment objectives, risks, charges, and expenses of the fund carefully before investing. Contact the issuing firm to obtain a prospectus which should be read carefully before investing or sending money. Because mutual fund values fluctuate, redeemed shares may be worth more or less than their original value. Past performance won’t guarantee future results. An investment in mutual funds may result in the loss of principal.