Turning to target-Date Mutual Funds can be an interesting option if you are looking to combine retirement with investing. Check the pros and cons of this retirement option!
Investing and saving for retirement may not seem a good combination, especially if the market drops by the time you plan to retire.
Although you may manage risks by keeping up rebalancing and diversifying your portfolio, it can be complicated when you don't have enough time or knowledge to do so.
Then, why don't you turn to Target-date mutual funds? They can manage to do the work for you, consistently rebalancing your portfolio as your retirement time comes closer, making sure that your retirement savings are protected even from massive drops in the market.
These retirement-focused funds reduce your investment in stocks as you get older, reducing also the risk and volatility in your portfolio. If this type of retirement saving plan is what you were looking for, then you need to check its pros and cons!
Pros of Target-date mutual funds
1. Simple: They represent an easy way to save for retirement. If you go for these funds, then you will not have to worry about maintaining a specific asset allocation. You can keep purchasing shares in the fund and the managers will take care of the rest for you.
2. Availability: These retirement saving plan has gained popularity in the last years, so many employers already offer them in their retirement plans.
3. Diversification: Target-date mutual funds provide diversification for your portfolio, so you won't have to worry about your investment risk and rebalancing your portfolio.
4. Adaptability: These funds adapt their strategy in markets as you age. They offer you to take chances while you are young by putting more money in stocks and weathering bad markets. As you get older, they will reduce risks and preserve your capital.
Cons of Target-date mutual funds
1. Less control: As target-date funds take complete care of your portfolio, you will have less control of it. If you go for these funds, you will rely on the managers to invest your money, so make sure you agree with their retirement savings plan.
2. Less flexibility: By using these funds, it makes it harder to adjust your strategy. This means that if you decide to reduce your weighting in stocks, you will then have to sell out of the target-date fund.
3. Fees: The target-date funds also charge you a management fee, just like every mutual fund. Also known as "expense-ratio", it usually means a percentage of the assets you have invested.