Anthony Saffer VP / Financial Advisor CFP®, CKA®, Alex Okugawa  / Financial Advisor CFP®, CKA®, CEPA®

Alex Okugawa  00:00

Should you invest in a target-date fund? Today we’re going to discuss the pros, the cons, and what you should consider. Stay tuned.

Alex Okugawa  00:20

Alright, Anthony. So let’s start with the basics. Target-date funds are predominant in 401k plans, IRAs, retirement accounts. So what exactly are they?

Anthony Saffer  00:34

They were released in the 90s. And they have become more popular ever since often as default options. So basically, when you look at like a 401k list of options that you have, it’s a premade portfolio that’s invested according to a timeline of when someone your age would commonly retire.

Alex Okugawa  00:52

Now, I know as a lot of people, they might get those list of funds, let’s say for 401k. Of course, the question is, well, are they any good? Should I invest in one?

Anthony Saffer  01:01

I think they hold a lot of good purposes. I’m very glad that they’re in retirement plans because I think for the majority of people, they work just great. Now, it depends on the management company, it depends on how they put it together. So when clients ask us about them, we can actually look under the hood and see what they’re invested in. And oftentimes, they’re, they’re fine. And then sometimes somebody needs a more customized portfolio. But for someone that doesn’t have the time, the expertise or an advisor, maybe they’re just starting out, giving a target-date fund can often be a good option.

Alex Okugawa  01:31

Yeah. And well, that leads to my next question, which is, who should consider a target-date fund?

Anthony Saffer  01:36

Yeah, I mean, really, when somebody’s starting out, and they’re looking for that instant diversification, I’m starting my 401k. I want to invest broadly, you can pick one fund, it’s it’s diversified within other funds underneath, and you have a professionally managed portfolio. And then you don’t have to worry about it.

Alex Okugawa  01:52

Do all your research.

Anthony Saffer  01:53

Yeah, because they start out more growth-oriented for someone that’s younger. And then as they post towards retirement, you continue to add, but they also reduce the risks from there. Now, somebody that has a more, you know, mature or accumulated type of account, they built something up, maybe they would benefit more from a customized portfolio.

Alex Okugawa  02:12

Yeah. So that’s the other thing, too, is that target-date funds. While they are good, they do hold a lot of merits. Of course, there are some drawbacks, folks that are getting closer to retirement, you know, maybe they should be taking on a little bit more strategic growth for the current financial plan, or maybe they need to be taking on less growth, maybe they need to be a little bit more conservative and income focus, to generate that retirement income,

Anthony Saffer  02:35

You do have to look at unique circumstances. So they are bit cookie-cutter, they work the majority of the time, but you have to consider those unique circumstances.

Alex Okugawa  02:42

And these are the things that we help folks with, especially with either like their 401k plan, or even as they’re heading into retirement, you know, should I keep holding this may be a target-date fund you’ve held for a while does it still make sense for me? These are the things that we help folks with in conjunction with their coordinated financial plan to help them through a successful retirement. If you’d like to get in touch with us, visit our website or give us a call. We’d love to talk with you.

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This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. See our website at onedegreeadvisors.com for full disclosures.