I don’t ignore my retirement accounts, but I consider myself mostly a set-it-and-forget-it investor. I prefer to pick an investment strategy, arrange automatic contributions and then sit back without tinkering much with my portfolio. For that reason, I used a target-date fund in my 401(k) (opens in new tab) when I had one (I’m self-employed now). My husband invests in a fund with a 2050 target date through his employer plan.
A target-date fund aims to create an appropriate investment mix for the investor’s age and approximate retirement date. A fund designed for someone with many years until retirement includes a high proportion of stocks for growth. Over time, the fund regularly rebalances, allocating a greater percentage of assets to less-risky, income-producing investments, such as bonds, as retirement nears.
We’re far from alone in our preference for target-date funds. Among 401(k) participants in their twenties, 54% of their assets were in target-date funds at the end of 2019, and investors in their thirties had 45% of assets in target-date funds, according to a study from the Investment Company Institute and Employee Benefit Research Institute. Many large employer plans automatically enroll employees and use target-date funds as the default investment choice.
Evaluating Your Plan.
Target-date funds are attractive for their simplicity. But if you’re dissatisfied with your plan’s target-date offerings or have the appetite to construct a customized portfolio, you can typically select among a menu of several other investment options. If you have decades to go until retirement, you may want to dedicate 80% to 90% of your portfolio to stocks. Individual needs vary, but as an example, a millennial might choose 40% large-capitalization stocks, 20% mid-cap stocks, 10% small-cap stocks, 10% international stocks and 20% short- to mid-term bond funds, says Melinda Satterlee, a financial planner in the Seattle area. Include both growth-oriented and bargain-price stocks.
If you go the do-it-yourself route, periodically check your portfolio to ensure the asset allocation is on point. Actively managing your investments calls for greater ability to keep your cool when the stock market dips. “The goal is to buy low and sell high, but our brains are wired to do just the opposite,” says Tara Unverzagt, a certified financial planner in Torrance, Calif. If you want help choosing and monitoring investments, see whether your plan provider offers advisory services or consider hiring a financial planner. You can find one who works with millennials at www.xyplanningnetwork.com (opens in new tab).
If you stick with a target-date fund, occasionally review whether it’s still a good fit. As retirement approaches, you may gain assets in other accounts, creating a need for a tailored blend of investments to keep your overall allocation on track. As your target-date fund’s asset allocation shifts, judge whether it matches your risk tolerance. If you’re an aggressive investor, for example, you may find that your portfolio’s stock allocation diminishes more than you’d like as time passes. You could switch to a fund with a target date further into the future or add stock funds to the lineup.
Lisa has spent 15 years with Kiplinger’s Personal Finance and heads up the magazine’s annual rankings of the best banks, best rewards credit cards, and financial-services firms with the best customer service. She reports on a variety of other topics, too, from retirement to health care to money concerns for millennials. She has shared her expertise as a guest on the Today Show, CNN, Fox, NPR, Cheddar and many other media outlets around the nation. Lisa graduated from Ball State University and received the school’s “Graduate of the Last Decade” award in 2014. A military spouse, she has moved around the U.S. and currently lives in the Philadelphia area with her husband and two sons.
Don’t Be Afraid to Jump into Investing, Women: It Can be Fun
Besides the sheer excitement involved, successful trading can lead to financial freedom and economic empowerment.
By Iyandra Smith, Esq., TEP • Published
Should You Help Out Your Adult Kids Financially?
Of course you want to assist your kids, but reaching into your own financial future could harm prospects for you both. What can you do?
By Neale Godfrey, Financial Literacy Expert • Published
This New Sustainable ETF’s Pitch? Give Back Profits.
investing Newday’s ETF partners with UNICEF and other groups.
By Ellen Kennedy • Published
As the Market Falls, New Retirees Need a Plan
retirement If you’re in the early stages of your retirement, you’re likely in a rough spot watching your portfolio shrink. We have some strategies to make the best of things.
By David Rodeck • Published
Where the Midterm Election Races Stand Today
Economic Forecasts In a tight race, these state elections may make the difference when midterm results are announced in November.
By Sean Lengell • Published
FedEx (FDX) Earnings Warning: Recession Harbinger or Single-Stock Hiccup?
Markets When a firm as big and broad-reaching as FedEx forecasts a sharp earnings drop, the market’s going to react. What’s this say for upcoming earnings?
By Anne Kates Smith • Published
The White House Touts A Digital Dollar: What Does That Mean?
cryptocurrency A CBDC, or Central Bank Digital Currency, is a step closer in the U.S., but going digital will take years.
By Ellen Kennedy • Published
What Ethereum's 'Merge' Means for You, the Market, and the Climate
cryptocurrency The "Merge" seems to have worked. What you need to know about crypto's biggest story of 2022.
By Rodrigo Sermeño • Published
How to Spend $1,000: Find Cheap (or Free) Online Courses to Build Career Skills
Smart Buying There's a huge array of skill-building online courses that can level up your career for under $1,000.
By Kim Clark • Published
How to Invest $1,000: Loan to Kiva
Smart Buying What could be better than donating to a good cause? Making that donation a loan and recycling it, re-investing after each repayment.
By Ellen Kennedy • Published