Target Date Funds Let You Invest and Forget
Your target date: Come up with your target date. When do you want this money to be available to you? Kathi doesn't plan to retire for at least 30 years, in 2038. As end dates for almost all of these funds run every five years, she is looking at funds maturing in 2030 or 2035. Two good options for Kathi: T. Rowe Price Retirement 2030 (TRRCX) and Barclays Global Investors 2030 (LPRDX). Both are great no-load (no upfront sales charge), low expense ratio (ongoing annual fee), highly rated target date mutual funds.
Since Kim and Robert have a 10-year time frame, they should stick to a target fund with an end date of 10 years or less. If they were to pick a later end date, say 20 years, their investments could be too aggressive and not provide more of the security they need for a shorter time frame. Two great funds that would help them reach their goals are American Century LIVESTRONG 2015 (ARFIX) or Vanguard Target Retirement 2015 (VTXVX) because they have a target date of less than 10 years and have shown returns above the current market. With market returns heading south in this economic environment, it can be hard to differentiate between mutual funds. One way to see a shining star is to check if a mutual fund has performed better than its index. These two have.
Bond-stock mix: If you were investing in a group of mutual funds for 20 to 30 years out, ideally your retirement portfolio would be approximately 80% stocks and 20% bonds. For your target date retirement mutual fund, you want the same balance. When Elizabeth was looking for an investment for her Roth IRA, she knew she wanted 20% in bonds and 80% in stocks, given that she is only 27. Fidelity Freedom 2030 (FFFEX) reflects this desired balance, with just over 20% in bonds and cash. If she changes her mind in the next few years and opts for a marginally more conservative approach, Schwab Target 2030 (SWDRX) has more than 30% in bonds. These mutual funds are both no-load, low expense ratio funds that have performed above their respective indices.
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