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January/February 2025
Target Your Investments
Most Americans have better things to do other than study the markets. That is why target-date funds continue to be so popular. Also known as age-based, lifecycle, and target-risk funds, target-date funds are designed to follow an investing path that changes when risk tolerance and time horizons change.
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According to a 2024 report published by the Employee Benefit Research Institute (EBRI), 88 percent of 401(k) plan participants have access to target-date funds*, and 68% of 401(k) plan participants in the EBRI database invest in them.Pros and Cons
In a world where time is a commodity, target-risk funds do the work for investors. These funds are typically identified by the target retirement year. For example, a 2030 fund is for near-retirees, a 2065 fund is for younger investors, and there are a host of options in between.Generally, they start with a balanced portfolio that may include stock and bond mutual funds, and that mix becomes more conservative as the target date nears. Target funds rebalance automatically, which is another convenient feature. Bear in mind that the principal value in a target date fund is not guaranteed at any time, including at the target date.
While this automatic approach to retirement investing has its advantages, it may not be right for every investor. If you plan to retire much earlier or later than the normal retirement age, which is currently 67 for most workers, the fund's asset allocation may not fit your time horizon.
Another potential disadvantage is that you still need to integrate target funds with other retirement investments to ensure you remain on track. Your financial professional can tell you more.
* Investors should consider the investment objectives, risks, charges, and expenses of the fund carefully before investing. Contact the issuing firm to obtain a prospectus, which should be read carefully before investing or sending money. Because mutual fund values fluctuate, redeemed shares may be worth more or less than their original value. Past performance won't guarantee future results. An investment in mutual funds may result in the loss of principal.
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