Using Target Funds for Retirement

Using Target Funds for Retirement


Much is being said about target funds and how poorly they have done in the recent market meltdown.

Target funds are generally composed of a mixture of stocks and bonds of varying types and investment entities. The percentage of holdings of each also vary, as the fund investors grow older toward their retirement.

That is where the name of the investment comes from. The investor targets a certain retirement date. The ratio of stocks and bonds within the investment portfolio changes with approaching investor retirement age. The amount of stocks grows smaller, and the bond percentage increases.
The arrangement also provides diversification which is supposed to reduce risk.

But this did not work out well during the recent financial meltdown, Both stocks and bonds took a market beating at the same time. And the financial media is taking potshots at the concept.

However, this problem is not one that will repeat itself that frequently.

But there is a problem with target funds, most critics have not been addressing. Most people are not going to retire as early as they plan for, if at all. So the target dates they set are far too low. Their planning ought to anticipate a retirement ten or more years beyond what target funds generally list. Most percentage ratios used are therefore extremely impractical.