Target Date Funds Let You Invest and Forget

Ideal candidates: If you don't have a lot of money saved and can only afford to invest $100 a month, or even a larger total sum of $3,000, investing in a target date mutual fund allows you to be instantly diversified. Since most mutual funds have a minimum investment of at least $2,500, you would not be diversified if you could only choose one regular mutual fund. You can contribute more to target date funds as you have more money, which also helps since you may not know which mutual fund category to invest in on an ongoing basis.

And even if you have $100,000, chances are you are not going to research the different categories you could invest in. This lets you take advantage of professional money management for the same cost of a regular mutual fund.

For a small-business owner like Kathi, she has been focused on growing her business, not managing her money. She invests in her SEP IRA every year based her income that year. She is especially worried with the stock market falling more than 40% this year and wonders how her target date mutual fund in her SEP IRA is doing. By visiting Morningstar.com, within minutes she sees the actual performance year-to-date and how it has performed relative to an index.

While it is down this year, her mutual fund is actually doing 5% better than the market. Even though it is only one mutual fund, she is really evaluating the performance of more than 20 mutual funds in her target date mutual fund. The likelihood of her reaching her retirement investment goals is stronger because she is able to take advantage of down and up markets and different types of investments without making the timely and intricate decisions herself.