Target Date Mutual Funds: Cheap and easy retirement investing!

With the vast majority of people not having the knowledge or time to research the stock market need an easy option to save for retirement. A lot of the major mutual fund companies have come up with a solution: The target date retirement fund. They can be useful tools for long term investing.

These are obviously for the passive investor. You simply pick the fund that is closest to your expected retirement year (such as 2030) and you invest your retirement savings in the fund. It is automatically allocated to a basket of funds that keeps you diversified. As the date approaches it automatically moves your savings toward income assets.

I must add that these funds are not for everyone. If you are more risk adverse than the allocation of these funds then they may not be a good fit. They start out quite growth-oriented and high risk and move towards a more conservative portfolio over time. If this is the case then you should create your own mix of funds and rebalance manually over time.

Another issue is that you are letting the fund manager how to invest your money. If they decide to change the allocation you may not even know about it. It could be changed to taking more risk than you can stomach or possibly even less than you desire. You have no real control over where the money gets invested.

Target date funds can be useful tools to some investors. I use them as a benchmark for my own investments to see if I can do better than the "pros" do in asset allocation and investment choices. If you do decide to use these funds then consider splitting among 2 different companies to achieve more diversity of allocation and investments.