If you are looking to simplify your retirement investing, consider a target-date fund. You get a complete, diversified portfolio in a single fund, and the portfolio has an asset allocation (investment mix) that stays geared to the year you plan to retire. You don't have to spend hours researching investments and creating an allocation that's appropriate to the amount of time you have left until retirement. The fund does all that hard work for you. Basically, a target-date fund offers you "hands-off" investing.
As a fund's target year draws nearer, its managers gradually move the fund into more conservative investments. This progression into less-risky territory, known as the fund's "glide path," is consistent with the idea that the closer you get to retirement, the more conservative an investment posture you should typically assume.
Choosing a target-date fund that matches your time horizon to retirement is easy because the target year is identified in the fund's name. For example, if you plan to retire in 2040, look for a fund with "2040" in its name.
But don't choose a fund based solely on the year in its name. While target-date funds are well diversified, be sure that any such fund you're thinking of investing in lines up with your tolerance for risk. You should also be comfortable with the glide path described in the fund's prospectus or on its website.
If you decide to invest in a target-date fund, you should generally invest all of your retirement contributions in that one fund. Otherwise, the asset allocation you get with the fund might be skewed by your other investments.
Once you invest in a target-date fund, revisit the fund at least once a year to make sure it continues to follow the glide path for which you signed up. Each fund updates its asset allocation in shareholder reports, which are updated twice a year.
To gain more insights into investing in a target-date fund, contact your EY financial planner.
This article is used with permission of Ernst & Young LLP.
Pension Boards members looking to invest in a balanced fund, may wish to look into the Pension Boards’ Sustainable Balanced Fund, or Target Annuitization Date (TAD) Funds. TAD Funds are suitable for investors who plan to annuitize in or around the year of a specific Fund, who want a portfolio that automatically becomes more conservative as time passes, and who prefer to leave reallocation to PBUCC investment experts. Watch this video to learn more about TAD Funds.