Keep The Course: Autopilot For Your 401k

Each Wednesday 401kBasics posts a new article in a weekly series called “Keep the Course”. This series is designed to give the average consumer information on how to keep their 401k plan on track! . Your feedback or suggestions on future articles is welcome.

They go by a few different names, Retirement Date Funds, Lifecycle Funds, or Target Date Funds, but regardless of the name, what you can definitely call them is the latest trend in 401(k) investing.

These funds take the guesswork out of investing. They are like your one stop shopping for retirement. These are what I like to call stand-alone funds. You select the fund with the year that’s closest to when you’re going to retire and you put all your money in that fund. The investment managers of the fund do the rest of the work for you, periodically rebalancing it to become increasingly more conservative as the target retirement date approaches. This follows the philosophy of exposing yourself to less risk when you’re closer to needing your money at retirement.

Lets say that today a 2040 fund invests 80% in stock, but 20 years from now, the allocation in the fund will be different and it would have more invested in bonds or cash equivalents with only 55% in stock. Each investment manager (Fidelity, Vanguard, T. Rowe…etc) will select a slightly different allocation, but the concept behind the funds remains the same.

Nowadays, 401(k) plans offer about 4 or 5 of these funds each with a different retirement date. If you’re still uncomfortable in selecting your own investments, or simply don’t have the time or desire to monitor your account as often as you should, then take advantage of these new investment options. Always keep in mind, that no investment is “fool-proof” and you should always check up on your account to ensure that it is still on course!

This site is for entertainment purposes only. 401kBasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.

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