Are Target Date Funds the Right Option for You?

If you’ve been looking into how to plan for retirement according to your long-term retirement timeline, chances are you’ve heard of target date funds. But what are they really? Target date funds are either mutual funds or exchange-traded funds (ETFs) that aim to help maximize gains and minimize risk over the course of your retirement timeline. Most target date funds prioritize riskier assets in their earlier years (when there is a lot of time left before the target date) and in their later years prioritize safety so that a downturn has less of a chance of hitting their finances hard, setting them back. Essentially, the target date fund is a generic strategy that guesses your risk tolerance and what your financial needs are based on your age.

For most of life leading up to retirement, the target-date fund may be a viable option for many, especially if one is looking to cut costs and take a hands-off approach to retirement investments. However, there are risks involved in taking such a hands-off approach especially as one gets closer to retirement.

Risks of the Siloed Retirement Strategy

As and individuals career progresses, they will likely accumulate more assets of different asset classes rendering a wealth picture potentially complex. For instance, a portion of wealth may be in life insurance, another in home(s), and real estate, all of which have their own timelines, liquidity levels, tax structures, and more. If retirement savings are being invested and managed in a silo without knowledge of the increasingly complex financial situation, investors could end up paying more tax or fees than one should or running into an unforeseen roadblock.

Does a “Set-it-and-Forget-it” Strategy Make Sense?

While for many years, a set-it-and-forget-it strategy may be the best way to help grow an investor’s finances in a retirement-centric, hands-off way, it may not be the best option when it gets close to retirement. The truth is that everyone is different and will have varying financial needs as they approach retirement. [1]

For example, factors such as insurance, health risks, asset allocation, liquidity, needs of dependents, spousal situations, and more all work to complicate what one should ask their money to do. As soon as an individual starts to ask their money to cover the unique costs they may face in retirement, it becomes less about how much can savings may grow, and more about how they can effectively cover costs so one can have the highest quality of life possible in retirement.

If you have questions about your financial situation and how to best tailor it to your specific financial situation, sign up for a time to talk with us about your retirement situation and financial goals.

 

[1] https://www.cnbc.com/2022/03/06/target-date-retirement-funds-work-up-to-a-point-when-to-reconsider.html


Because investors situations and objectives may vary this information is not intended to indicate suitability for any investor.

This presentation is for informational purposes only and does not constitute an offer to buy or sell any product. Past performance and any forecasts are not indicative of future results.

Mutual Funds and Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Performance is not guaranteed and may be lower than anticipated. Past performance is not a guarantee of future results.

Advisory services offered through Asset Strategy Advisors, LLC. (ASA). Securities offered through representatives licensed with Concorde Investment Services, LLC (CIS), member FINRA/SIPC.  Insurance offered through Asset Strategy Financial Group, Inc. (ASFG). ASFG and ASA are independent of CIS and are separate companies.

ia-eh-gp-a-511-10-2023

 

 

Share This Post With A Friend Or Family Member!