Learning how to invest requires time and effort. Fortunately, mutual funds have simplified investing for the average investor. In the past few years the process of selecting mutual funds has been made easier. Target retirement funds are now available through major mutual fund families, and are offered by many 401(k) plans as well.
The target retirement fund advantage: one-stop shopping, virtually no investment knowledge or experience necessary. Just buy and hold, pay your fees/expenses and maybe sales charges. Professional money managers handle all of the investment decisions based on the retirement year you pick. Just select the target fund closest to the year of your planned, or past, retirement. Example: target retirement 2030 fund would be appropriate if you plan to retire within two or three years of the year 2030.
Once invested you never need to make another investment decision or worry about how to invest. As you approach retirement and become more conservative, so does your investment portfolio.
Target retirement funds are typically mutual funds that simply invest in other stock funds, bond funds, and money market funds of the same mutual fund company. Target funds dated far into the future, like target 2040 or 2050, will be heavily invested in stock funds for many years to come. If you invest in a target 2020 fund today, your money will be invested primarily in stock funds and bond funds, mostly stock funds the first few years.
If you are already retired and don't know how to invest, you might consider putting your nest egg into the safest of these funds, the retirement income fund. These target funds invest about 80% of your money in safer income-producing investments like bond funds and money market funds to provide you with income in retirement.
It doesn't get much easier. Plus, you can save thousands on mutual fund sales charges by buying one of these funds through a no-load mutual fund family instead of through an investment professional.
Target funds are the easy way to invest in a professionally managed retirement portfolio targeted to your station in life. The idea behind these investments: young people need growth and can accept higher risk, middle-aged investors will accept moderate risk for higher-than-average returns, and older folks will accept some risk to earn a higher level of income in retirement.
The problem is: if you don't understand investment basics or how to invest based on your personal risk tolerance, you might select a target fund that is not really suitable for you. In other words, the same shoe will not fit all investors of a given category. Some young people are conservative, and many retired folks are uncomfortable taking even a small risk with their retirement nest egg.
Like with any other mutual fund, you need to understand the nature of the investments held in a target retirement fund portfolio. Virtually any of these funds can lose money, and in 2008 the vast majority of them did. Why? Because these funds have market risk, and 2008 was a horrible year for the stock market. Let's take a closer look at the risk involved.
If you plan to retire in 2040 and invest in a target retirement 2040 fund, 90% or more of your assets will be invested in stocks. If the stock market drops 40% as it did recently, expect that you will lose almost 40% of your investment value. A 2050 target fund could be 95% invested in stocks.
If you plan to retire in 10 or 20 years, beware that a 2020 target retirement fund will be about 60% invested in stocks and a 2030 fund about 80%. If you are not comfortable with this risk, consider putting all or some of your retirement assets into a safer target fund. For example, a 2010 fund bought today would only be about 25% invested in stock funds.
If you are retired, your obvious choice appears to be the retirement income fund. These funds might invest about 20% in stock funds and the rest in bond funds and money market funds. There is other risk here as well, because long-term and intermediate-term bond funds have interest rate risk. If interest rates in the economy go up significantly, more than likely the value of these funds will fall.
The simplicity of target retirement funds is a nice feature. Just be aware of what you are getting into before you put all your eggs into one basket. Never assume that everything will be just fine. There will always be bumps in the road ahead.
It is always better to be informed so you can deal with difficult times, and avoid major losses. Do yourself a favor and learn how to invest.
A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.
Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com/ .
Article Source: http://EzineArticles.com/?expert=James_Leitz
The target retirement fund advantage: one-stop shopping, virtually no investment knowledge or experience necessary. Just buy and hold, pay your fees/expenses and maybe sales charges. Professional money managers handle all of the investment decisions based on the retirement year you pick. Just select the target fund closest to the year of your planned, or past, retirement. Example: target retirement 2030 fund would be appropriate if you plan to retire within two or three years of the year 2030.
Once invested you never need to make another investment decision or worry about how to invest. As you approach retirement and become more conservative, so does your investment portfolio.
Target retirement funds are typically mutual funds that simply invest in other stock funds, bond funds, and money market funds of the same mutual fund company. Target funds dated far into the future, like target 2040 or 2050, will be heavily invested in stock funds for many years to come. If you invest in a target 2020 fund today, your money will be invested primarily in stock funds and bond funds, mostly stock funds the first few years.
If you are already retired and don't know how to invest, you might consider putting your nest egg into the safest of these funds, the retirement income fund. These target funds invest about 80% of your money in safer income-producing investments like bond funds and money market funds to provide you with income in retirement.
It doesn't get much easier. Plus, you can save thousands on mutual fund sales charges by buying one of these funds through a no-load mutual fund family instead of through an investment professional.
Target funds are the easy way to invest in a professionally managed retirement portfolio targeted to your station in life. The idea behind these investments: young people need growth and can accept higher risk, middle-aged investors will accept moderate risk for higher-than-average returns, and older folks will accept some risk to earn a higher level of income in retirement.
The problem is: if you don't understand investment basics or how to invest based on your personal risk tolerance, you might select a target fund that is not really suitable for you. In other words, the same shoe will not fit all investors of a given category. Some young people are conservative, and many retired folks are uncomfortable taking even a small risk with their retirement nest egg.
Like with any other mutual fund, you need to understand the nature of the investments held in a target retirement fund portfolio. Virtually any of these funds can lose money, and in 2008 the vast majority of them did. Why? Because these funds have market risk, and 2008 was a horrible year for the stock market. Let's take a closer look at the risk involved.
If you plan to retire in 2040 and invest in a target retirement 2040 fund, 90% or more of your assets will be invested in stocks. If the stock market drops 40% as it did recently, expect that you will lose almost 40% of your investment value. A 2050 target fund could be 95% invested in stocks.
If you plan to retire in 10 or 20 years, beware that a 2020 target retirement fund will be about 60% invested in stocks and a 2030 fund about 80%. If you are not comfortable with this risk, consider putting all or some of your retirement assets into a safer target fund. For example, a 2010 fund bought today would only be about 25% invested in stock funds.
If you are retired, your obvious choice appears to be the retirement income fund. These funds might invest about 20% in stock funds and the rest in bond funds and money market funds. There is other risk here as well, because long-term and intermediate-term bond funds have interest rate risk. If interest rates in the economy go up significantly, more than likely the value of these funds will fall.
The simplicity of target retirement funds is a nice feature. Just be aware of what you are getting into before you put all your eggs into one basket. Never assume that everything will be just fine. There will always be bumps in the road ahead.
It is always better to be informed so you can deal with difficult times, and avoid major losses. Do yourself a favor and learn how to invest.
A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.
Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com/ .
Article Source: http://EzineArticles.com/?expert=James_Leitz
No comments:
Post a Comment