Money Talks News - It's been said that monkeys throwing darts at the financial pages are just as likely to pick winning stocks as investment pros.
That's a scary thought, especially when someone is depending on that 401k to fund those golden years. That's why so many investors are attracted to target date mutual funds.
With a target date fund, you pick a retirement year, and the fund aims to pick the proper portfolio by automatically moving into more conservative investments as that retirement date approaches.
In short, you pick a fund matches your exact retirement date, and the target fund does the rest. Great concept, right? Maybe, but maybe not. There are some points you need to consider.
First, is fund management active, meaning investments are picked by humans, or passive, meaning invested in index funds? Active management is potentially trickier and typically more expensive.
That leads to point two: Expenses. Target date funds can be more expensive than straight index funds. Find out what they are charging you in annual fees and expenses.
Point three: Performance. Compare the returns of the target fund you're considering with other similar target funds and see if how it measures up.
If a 401K plan has crappy target funds such as bad performance, high expenses, it is suggest that you get a low-cost index fund. Get one for stocks and one for bonds. It's important to re-balance.
Target date funds can be a simple way to score the perfect investment mix. But ask some questions before you throw your retirement money at one. For more information head to the Money Talks News website and do a search for "Target Funds."