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There’s been a lot of talk about Target Date Funds. What are they and are they beneficial to a retirement plan? Managing Director of DLG Wealth Management, Andy Guzzetti discusses what these funds are, the pros and cons.

Target-date funds are a relatively new type of mutual fund that allows financial investors to set a “target date” for the life of the fund. These funds have become popular with investors and retirement planning. As people get closer to the target date or their retirement time, they take money out of stocks and put money in bonds; therefore shifting a 401(k) to a more conservative investment.

These funds are aimed at people planning for retirement and have appeal because of its convenience. Here are the pros and cons to this new type of fund:

PROS:
•    They are convenient, as investors put their investments on autopilot in one fund

•    Employers have made these their 401K default funds. These funds are better than the money market

CONS:
•    Target date funds are a “one-size-fits-all” approach, which may not be beneficial because investors are different

•    Target date funds may not keep up with inflation after you retire, especially if you live 20 or 30 years after retirement – may be too conservative

•    For people close to retirement around 2015, it may not be a good idea to have investments highly into bonds, as we believe that’s not the place to be right now

•    They could ultimately reduce opportunities for growth over time

With investments in a target date fund, people may be earning a little bit, but we feel that now in the market, it is ideal to make your own asset allocation, your own rebalancing so you will make a better return.

For more information on managing your finances, or other financial advice, visit our Contact page to speak with an investment advisor. You can also see Andy Guzzetti every Monday morning on WXXA Fox – Albany.