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R. Michael Richardson

Should I Use Target-Date Investments?

R. Michael Richardson

April 15th, 2019 | Written by

Target-Date Investments

A target-date investment serves to simplify your investment selection. It is used as a complete portfolio, containing a collection of mutual funds that form a broadly diversified mix of stocks and bonds. For some investors, this is appealing as it saves time and effort. Instead of selecting individual securities, investors can pick just one mutual fund and be done with the investment selection process. Each target-date investment has a year in its name, the target date. The investment is designed for people planning to retire and leave the workforce in or around that year. To find a target-date investment that might work for you, simply ask yourself when you want to retire. If you’re not sure, you can ballpark it by adding 67[1] to your birth year. Then look at the target-date investment closest to that year.

Target-Date Investments Serve You For The Long Run

A single target-date investment can work for you throughout both your career and retirement. Experts generally recommend reducing investment risk as you approach retirement. The sooner you plan to spend the money, the less time you have to recover from losses in the market. A target-date investment handles this process for you. It will hold more stocks the further it is from its target date, seeking the high potential growth of stocks. As the target date approaches, the investment gradually decreases its stock holdings and increases its bond holdings, making it more conservative. Bonds usually have a lower risk of loss, though they also have lower potential gains.  The gradual move from stocks to bonds continues until it reaches a mix intended for retirees taking withdrawals. A target-date investment also handles most regular maintenance for you. If the investment’s mix of stocks and bonds is thrown off by the market, it will automatically adjust to keep you on course.

Target-Date Investments Require Some Maintenance

Target-date investments simplify investing and handle a lot of work for you, but they aren’t a nonstop ticket to a dream retirement. A target-date investment is designed for a particular retirement year, not a particular person. It doesn’t consider your personal finances and tolerance for risk. Before you choose a target-date investment, you should examine its mix of stocks and bonds. If you aren’t comfortable with the mix, consider choosing a different one, even if its target date doesn’t match your retirement year. Your personal situation could change over time. Maybe your tolerance for risk will change or you could decide to retire earlier or later. It’s a good idea to check your investment mix regularly to make sure it matches your goals. You’re never locked into a particular target-date investment.

A note about risk – all investing is subject to risk, including the possible loss of the money you invest. Target-date investments are subject to the risks of their underlying funds. The investment will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. A target-date investment is not guaranteed at any time, including on or after the target date. Diversification does not ensure a profit or protect against a loss.

[1] Full Social Security retirement age for workers born in 1960 or later. If you were born earlier, full retirement age is 65 to 66, depending on your birth year.

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The Prosperity Consulting Group registered as a Registered Investment Advisor (RIA) in 2005. We have with a passion for providing clients with objective investment advice and wealth management solutions. Our purpose, coupled with our fiduciary commitment, is essential in helping clients achieve their financial goals. Our firm is dedicated to providing unparalleled financial planning and investment advice to individuals, families, businesses and institutions. We have identified key areas that are critical and integral to a client’s financial success. These planning areas encompass: Investment Planning & Management Retirement Planning Estate Planning Tax Planning Business Planning Insurance Planning Income Protection & Asset Preservation Education Planning 401(k) Planning
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