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How to Pick a Target Fund

How to Pick a Target Fund
These funds simplify retirement investing.

"You pick which target you want, and then the rest of it is taken care of by the portfolio manager of the asset management firm."

TARGET-DATE FUNDS ARE popular offerings in 401(k) plans, offering a nearly "set it and forget it," all-in-one way to invest.


  • A would suggest pick a target date fund for the year when you will need it and fund it to meet that need. If you are saving for college...what year will your kid enter and how much will you need? If you are saving for an income source when you retire...what year will that be and for how long will you need to fund that income and most importantly how much will that fund need to have in it? I think target date funds can serve many target date needs...not just the generic approach of picking a fund according to what year will you retire?

    If you don't need the money at retirement ask yourself the questions:
    - when will you need it? and,
    - for what? and,
    - how much will you need?

    I can imagine someone selecting many target date funds that meet many target date (financial) needs. Just align the date of your financial need with a target date fund.

    Not a bad approach to managing risk/reward/asset allocation at a reasonable price.
  • Don't forget to pay attention to management fee and the underlying funds used in target date funds. Next is compare their performance with their peers through the market cycles (if they have the track record back to 2008 if all possible).
  • edited February 16
    Target-Date funds may be a good option for investors. Some important considerations: 1) mutual fund company; 2) fund fees; 3) glide-path. Target-Date funds can be easier to use compared to other fund categories. They tend to have higher investor returns - performance of the average dollar in a fund over a certain time period after taking cash flows into account. The annual "Mind the Gap" studies published by Morningstar provide additional context.
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