Best Target-Date Investment Funds – Life Funds to Help You Retire on Time

Target date mutual funds have become popular investment vehicles for retirement savings, and are often found in 401(k) plans and other employer-sponsored retirement plans. But are these mutual funds suitable for you and your retirement goals?

What are target date funds?

Target date funds are often mutual funds that invest in a mix of stocks, bonds, and other investments. What makes these funds unique compared to other balanced funds is that the asset allocation gradually changes over time in a way that is appropriate for investors who plan to retire in a specific year or decade.

Are target date funds suitable for you?

Investors who may benefit the most from investing in target date funds are those who are looking for:

• **Simplicity:** It is natural to be confused about how to shift your asset allocation over time as retirement approaches the target date. Target date funds simplify the investment process so that investors do not have to do any research or additional investment management. Some investors do not have the desire or time to learn how to build a portfolio of mutual funds for retirement.
• **Diversification:** Target date funds typically consist of a variety of mutual funds, making them a diversified portfolio in one fund.
• **Automatic investing:** They will determine the appropriate asset allocation for your specific retirement date, gradually reducing stocks and increasing bonds over time. With that, the target retirement fund does all the asset allocation and investment selection on your behalf.
• **One-stop solution:** Target date funds can be seen as a comprehensive solution for retirement planning. An investor who has most or all of their retirement savings in one account like a 401(k) or IRA is the most suitable candidate for target date retirement funds.

Target date funds are not suitable for everyone

Despite the many benefits of target date funds, they are not the perfect choice for all investors. For example, an asset allocation of 80% stocks and 20% bonds may be suitable for someone retiring in 30 years but may not be appropriate for a low-risk tolerance investor.

Target date fund managers assume a portfolio structure that is a one-size-fits-all, meaning they will invest in the same way for all shareholders in the fund. When choosing the most suitable investments, you will want to consider several variables, such as life expectancy, risk tolerance, and funds already invested in your portfolio.

**Note:** Your risk tolerance can be affected by your personality and current financial situation. As financial circumstances change over time, your risk tolerance may also change, regardless of how you handle money on a personal level. It should be reassessed from time to time.

Best target date funds for retirement

Like choosing other mutual funds, the best target date funds will be those that combine below-average expense ratios, widely diversified portfolios, and long-term performance that is average to high.

Here are some families of funds that offer the best target date retirement funds:

• **Vanguard Target Retirement Funds:** Not only has Vanguard offered target retirement funds for over 15 years, but it also uses its index funds as the core assets for each portfolio. Therefore, investors using Vanguard target retirement funds are guaranteed at least “average” returns with broadly diversified portfolios. Owning low-cost index mutual funds is a natural choice for one of the best families of target date funds. The average expenses of Vanguard target retirement funds are 0.12%, while the average target date fund expense is 0.55%.
• **Fidelity Target Date Funds:**

Freedom from Fidelity: Like Vanguard, Fidelity has a strong array of low-cost mutual funds, and the Freedom Funds maintain this tradition. Fidelity offers target-date retirement funds for a longer duration than most other mutual fund companies. Its long track record demonstrates its skill in building low-cost and widely diversified portfolios.

• Target Date Funds from T. Rowe Price: Historically, T. Rowe Price’s target-date retirement funds have performed well compared to their peers in the category. However, their distributions have leaned more towards equities. This usually leads to higher performance, which can be a wise goal in the early years of retirement saving. However, the relatively higher risks (and lower returns in down markets) may be too volatile for some low-risk tolerance investors.

Conclusion

Target-date funds, also known as “lifecycle funds,” are smart investment options for retirement savings due to their key benefits such as simplicity, diversification, and automatic asset allocation adjustments over time. However, target-date funds may not be suitable for every investor. Make sure to study how these unique funds work before investing.

The Balance does not provide financial or investment services or tax advice and does not offer financial advice. Information is presented without regard to the investment objectives or risk tolerance or financial circumstances of any particular investor and may not be suitable for all investors. Past performance is not indicative of future results. Investing involves risks, including the risk of loss of principal.

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Source: https://www.thebalancemoney.com/best-target-date-retirement-funds-2466330