I am ready to start an IRA and this is all very new to me. I have been reading about targeted retirement funds and wondering if this is a good place to start? I am already 37 so I feel like I should start with something safe and learn as I go. Any advice is appreciated.
Greetings michmar,I am ready to start an IRA and this is all very new to me. I have been reading about targeted retirement funds and wondering if this is a good place to start?Good being a relative term, I would say yes. The main issue I would have with this is that after you've read up on various investing strategies is that you may decide to move the account from one company to another and face some termination fee on one end of this. I am already 37 so I feel like I should start with something safe and learn as I go.Whoa, safe is a dangerous word from my view to use here. While some life-cycle funds like Fidelity Freedom funds and Vanguard's Target Retirement funds are designed to be used by those that want simplicity, do not think that these don't carry some risk, especially for those with a high stock allocation which the further out retirement is, the bigger this allocation will likely be.Regards,JB
>> I am already 37 so I feel like I should start with something safe and learn as I go. <<I think they are a reasonably good way to get started as long as they are invested in decent funds and the expense isn't too high. The best thing about them, I think, is built-in asset allocation in one fund. Though I think these are reasonably good options for people just learning, once you're more educated on the markets, asset allocation and financial planning, you can "roll your own" asset mix when you have enough assets to hold several positions in individual asset classes.I think for most younger people, though, these "lifecycle funds" tend to have more allocated to bonds than they need to. If you're more than 15-20 years from retirement, I don't really think you need any bonds at all; if history is a guide, bonds have never outperformed stocks over a 20 year period since at least (I think) something like 1871. But if you want to reduce volatility, some of the ones that target retirement for (say) 2040 may have just a little in bonds. #29
mich,Combining what both #29 and jb (happy anniversary jb) wrote;As you start, they are probably a lot safer than just picking stocks, but they can go down. The risk, depending on how you measure it, is less than the "market" in part because of the bond allocation. At 37, you probably do not need to worry about bonds - especially if you have a pension or SS. (IMHO)If I were to chose a target fund, it would have a retirement horizon of when I was about 80. Reduce the bonds and be alittle more aggressive because of my tolerance so 2040 is not to far off. I would also then compare the fund, holdings and fees to low cost mutual funds Vanguard/Fidelity or index funds. If I were to just want a simple approach and not spent much time, one of these other items may serve just as well and then as I learned more and became more involved, transferring out may not be as costly-and since we do not know the future may actually have more money in them. Depending on how your allocation model comes out, you may be leaving what you have in the fund alone anyway.IMHO - fair place to start - but you may do better.DrTarr
As long as you pick a low cost one based on indexes, they are not really "bad" but you can easily do better by just buying a few index funds yourself. This is especially true if you are buying them outside of a retirement account like a 401k or IRA since the tax considerations are more important. Here are some of the problems I see;The biggest problem is that they tend to be very conservative since they do not know your entire financial picture. For example; there might be a targeted fund for 2040 that manages the investments for these people;a) A highly paid manager, with a working spouse, with no kids and a traditional pension.b) A moderate-income single parent with no pension.c) YouIntuitively you would expect for the best asset allocation for these people to be different, but the targeted retirement fund has to invest with the same allocation for everyone, so they tend to go for a very conservative choice and may have too high a percentage of bonds for many people. It really doesn't make sense to me to use your retirement date as the only criteria for your asset allocation.Greg
I am ready to start an IRA and this is all very new to me. I have been reading about targeted retirement funds and wondering if this is a good place to start? I am already 37 so I feel like I should start with something safe and learn as I go. Any advice is appreciated.----------------------Personally, I think they are great! It wasn't too many months ago that I encouraged my daughter to change her hodge-podge of funds in for something that she could understand and wouldn't have to pay all the fees associated with her mess.This type of automated investing was perfect for her because she wanted a "Feed-it-and-forget-it" type of portfolio. She wanted to prepare for retirement, but she wasn't interested in learning any more about investing then she absolutely had to. She wanted to spend her free time with other life pursuits (I didn't ask).You can always make changes later as you become more informed and experienced. So...my vote is go for it, but utilize a fund family you can trust that has low fees - like Vanguard.Regards,Bill
Personally, I don't go for the targeted funds, partly because of the "overly conservative" angle mentioned above, but also because certain investment companies use this as an excuse to charge higher fees.I am already 37 so I feel like I should start with something safe and learn as I go.If you're going for the traditional retirement at 65, that's more than 25 years to work with. You have a couple years on me, but there are a lot of people would love to have that much time.--LaughingRaven "I'm thirty-seven, I'm not old!" -- Dennis, Monty Python and the Holy Grail
As you've seen from most of the replies already, asset allocation is a very sacred thing. Everyone has a different (although it may be slight) opinion as to their allocation. Maybe I should use the word feel, because your allocation really does involve some "touchy-feelyness".I agree that it would probably be a good place for you to start. If you don't want to do further research, fine - leave it there - I'm sure Vanguard will take care of it for a very reasonable price. However, if you do decide to do a bit more research into yourself, and your own allocation, then you can branch out, and start choosing your own investments.Obviously I enjoy this, and probably sound a bit on the dorky side, but I look at this as my own work-in-progress. When I first started, I had no idea what I wanted to do with bonds. As it turns out, I don't want them right now. I know that Grandpa Ben always said no less than 25% should be in either stocks or bonds...but hey - life's too short.Good luck.Ryan
Hey JB,Happy Foolish!Ryan
"I'm thirty-seven, I'm not old!"------------*,*------------I'm sorry but from the back you look like a woman!DrTarr(Moose effects by Kelly)
I have been reading about targeted retirement funds and wondering if this is a good place to start? There are worse places to start for sure, but as others have said, most of these hold too many bonds for my taste, and fees are an issue.If you want to learn to do it yourself, start off doing it yourself. Vanguard is hard to beat on fees. If you open an IRA there and put your first year's contribution into a total stock market index fund, by the time next year's contribution rolls around, you will have a much better idea where to put that. I, personally, would be comfortable with a 100% allocation to a total stock market index fund for a year, knowing that the second year's contribution would be used to diversify a bit more. If you spend an average of 5-10 minutes every day reading about investing, you will be much more educated next year.
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