Target Funds

What are target funds?

Target funds or target mutual funds are designed to take the mystery out of age based investment diversification. Identifying target funds is easy because target funds are named with their retirement target date such as 2010, 2020 or 2035.

How do target funds work?

With target funds, you need to guesstimate your retirement date, select a target fund that is nearest to that date and the mutual fund company will gradually change the asset allocation over the years. Target funds are popular among some investors.

What investments are in target funds?

In target funds, many mutual funds are often included such as stock mutual funds, bond mutual funds. Target funds are sometimes called funds of funds because they are effectively mutual funds that contain other mutual funds.

Target funds are not new investments however many mutual fund investors have been confused about what target funds are and how they should invest in target funds. Drawbacks of target funds While target funds have advantages, there are also disadvantages and drawbacks to target funds. One main drawback of investing in target funds is that if you plan to retire at roughly the same time as when the target funds mature, the target funds may be too conservative.

Some investors prefer to do their own asset allocation because while they are retired, they are still investing actively and prefer to have a more aggressive portfolio. For these investors and retirees, target funds may not be the right move for their investments.

Many choices of target funds to choose from

Among popular target funds managers are American funds target retirement funds, Vanguard target funds, T. Rowe Price target retirement funds, and Fidelity target retirement funds. Choosing the best target retirement funds is the same as choosing any best mutual funds. Do the research into each target fund before you decide.