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Is a Target-Date Fund the Best You Can Do?

4 Minute Read

We’ve all been there—stuck in the chip aisle, unable to pick a flavor. Before you know it, it’s been 10 minutes, and you’re still sweating your decision. Who knew a bag of chips could trigger such anxiety?

If you get hung up on something as simple as chips, try choosing between retirement funds. When you can’t make heads or tails out of your options—and your future depends on it—the pressure really cranks up.

No wonder so many folks default to target-date funds. It’s just easier.

But is easy the best you can do? When your retirement is on the line, it pays to carefully consider your options with an investing professional.

Easy Does It?

With a target-date fund, there’s no stressing over fund choices. You simply pick the fund that corresponds to the year you plan to retire, such as a 2040 or a 2050 target-date fund.

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Target-date funds automatically adjust your risk down gradually as you age. The younger you are, the more aggressive your investments. As you rack up birthdays, your investments grow more and more conservative. By the time you retire, your portfolio has a heavy mix of money markets and bonds.

This idea—called asset allocation—can help you manage risk in your investment portfolio when it’s done with the help of an investing professional who has your personal situation and goals in mind. But target-date funds take a one-size-fits-all approach to asset allocation, and that can keep your nest egg from reaching its full potential.

Let’s compare two scenarios to see the difference.

In this example, Jill and Kate start investing at age 30 and contribute $250/month to a Roth IRA. Jill puts her money in individual growth stock mutual funds after discussing her options with her investing pro, while Kate invests in a target-date fund.

Both investors come out of the gate with a similar strong start. But over time, Kate’s retirement fund starts falling behind. By the time they retire 35 years later, Jill’s nest egg has a $200,000 advantage over Kate’s. And that’s because of a mere 2% difference in return in the last 15 years.

Retirement Isn’t the Finish Line

Maybe you’re okay trading savings today for security tomorrow.

But your investments don’t have to stop growing just because you retire. Your golden years could last another 20–30 years. Giving up on risk at this stage could mean giving up on returns that can sustain you through retirement.

Sure, you’ll start dipping into your nest egg to cover life expenses. But the money that’s left can still harness the power of compound interest.

And this is where individual investments shine.

Let’s assume Jill and Kate retire in 35 years and take out the equivalent of $25,000 in today’s dollars from their Roth IRAs each year.Even with those modest withdrawals, Kate’s retirement fund becomes a goose egg in just 13 years. Jill’s, on the other hand, continues growing for 16 years and still has a big chunk of money left after 30 years.

A Simple Strategy That Leaves You in Control

Target-date funds aren’t the worst way to invest your money, and they’re certainly better than not investing at all.

But you can do better.

With target-date funds, you put your future in someone else’s hands. Investing isn’t a one-size-fits-all venture. You should feel confident your money’s going to work for you in retirement.
So does that mean you have to fly solo?

Nope.

There’s a middle ground that gives you power over your portfolio without having to figure it all out on your own. It’s as simple as sitting down with an investing pro you trust.

Partner With a True Pro

Don’t settle for a know-it-all who tells you what to do and where to put your money so they can cash in on your success. You deserve to be treated like a partner, not a paycheck. Don’t leave your financial future in someone else’s hands.

That’s why it’s so important to work with an investing pro who helps you build a plan that fits your goals. It’s not a one-time conversation. It’s a proactive relationship that keeps an ongoing eye on the prize. You decide if and when to adjust your risk based on their professional advice. Remember, the final decision should always be yours.

If you’d like to be the expert in charge of your future, we can help you find an investing pro who can help you reach your financial goals.

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