News from the Finance Office

The relative lack of success of target-date funds for the past couple of years have been understandable since there were hardly that many investments that withstood the brunt of the economic crises and thrived. However, conditions surrounding these investments have changed somewhat, as people lost money and Congress caused fund providers and managers to change their formulas. Target-date funds today are much more conservative than they were in 2008, although there is hardly a set standard for this type of asset allocation of funds. This further muddles how you should pick such a fund or tweak an existing one to your best advantage, but there are some guidelines that experts recommend, including checking your investment risk and decreasing or increasing it with an earlier or later target date and redefining your asset mix.

You can go deeper into the mix of assets your fund is invested in. Some of these funds are branching out by buying into commodities or investments similar to hedge funds. You can opt to buy from providers whose assets are a good bet. For instance, one Putnam fund places somewhere between 10-50% of all fund assets in funds that guarantee absolute returns. The implication of the allocation is that there is much less risk for the investor, as it uses numerous strategies to manage and decrease the effects of market volatility. However, it may be hard for the average investor to find out how effective these funds are due to heir complex structure; you can research on the topic and ask for help from a professional investment planner who focuses on these kinds of funds.

Cannot bet a huge part of your nest egg (and possibly the security of your retirement) on fund strategies that have not performed that well for that long? You can choose to toss out the target-date fund option, and instead check if your 401K invests in balanced funds (which usually have a 60/40 mix of stocks and bonds, respectively). Another alternative is establishing a stock/bond index fund portfolio. For this investment strategy, you can determine your mix of assets by going with how a target-date fund allocates, or check with an index fund expert. The upside to this option is that balanced funds diminish investment risk near retirement by moving cash into bond funds. The downside is that target-date funds automatically shift to lower risk with lower stock allocation, so you may have to increase bonds in your fund by yourself every one or two years.

About the Author:

Katherine Smith is an author who specializes in financial topics concerning seniors. Puritan Financial Group gives seniors access to other investments that generate stable income. For more information on how Puritan Financial Group can help you, please visit our website at http://www.puritanlife.com.

Article Marketing

2 people like this article