Target Date Funds Pros And Cons

What Is A Target Date Fund? These mutual funds, known as life-cycle, age-based, and dynamic risk, are offered by investment companies like Vanguard and Fidelity.

Benefits of Target Date Funds

1. Simplicity The average investor may not have the knowledge or desire to actively do their own shifting of assets from an aggressive portfolio to a more conservative portfolio.

2. Diversification All investors should have diversification within their respective portfolios. You should never have concentrations in one particular stock or bond.

3. Asset Allocation It is important to allocate your assets into different baskets according to your risk tolerance, age and investment purpose. Different asset classes have different risks.

Drawbacks of Target Date Funds 1. One Size Doesn’t Fit All The conventional wisdom is that younger individuals should invest more of their savings in riskier stocks.

2. Greater Income Volatility If you are among those who have monthly swings in income, higher allocation in stocks may not necessarily be desirable for you.

3. Retirement Age May Be Going Up “Full retirement age” has moved up a few years as reflected in that our ability to collect 100% of our social security benefits.

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