Have you neglected the investments in your 401(k) or 403(b) for years? That might actually be ok. In fact, it could even be a good thing. Retirement accounts are long-term investments and should be treated as such. Those who trade a lot or try to make tactical moves to time the market often end up sacrificing returns, thereby compromising their ability to retire securely.
If you’re invested in target date funds, the investment lineup you chose five, 15, or 25 years ago may be pretty close to what you need. Target date retirement funds are diversified investments that seek to meet your financial goals by aggressively pursuing market growth in your early working years, then gradually transitioning to a more conservative stance as you approach retirement. In many retirement plans, they are the default option if no other specific investments are chosen.
Pros and cons of target data funds
Target date funds are not perfect. They are a blunt tool that can’t be tailored to each individual’s investment needs. Just because you’re going to turn 65 years old in 2030 doesn’t mean that you’ll retire that same year. And even if you do retire that year, you may not need to be drawing on the account right away. Your financial situation may look completely different from another investor who will turn 65 and retire that same year and is invested in that same fund.
There is no substitute for a comprehensive and individualized financial plan to ensure that your retirement account will support your financial needs. What’s more, the path that funds take from aggressive to conservative investment stances can vary widely from one investment company to the next, and target date funds can have fairly high fees.
Despite these drawbacks, target date funds can serve their purpose well, particularly when retirement is many years in the future. This is especially true if target date funds help you avoid trading too much in your portfolio, thus ensuring that you remain invested for the long-term.
Additionally, target date funds allow all investors (including those without access to a professional advisor) to invest their retirement accounts in a manner that can help to support their long-term goals.
There is no silver bullet in the investment world. All investments entail a trade-off between risk and return and they should be made within the context of your broader financial situation. Target date funds may play a productive role, but you should speak with your advisor to ensure that your portfolio is on track to support your financial strategy.
If you have any questions about the investments in your retirement account, please contact our team to setup a time to connect.
