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Tuesday, January 20, 2009

Target-date investment funds: retirement made easy

Target-date retirement funds are an excellent way of investment after retirement for people who lack the time or the expertise to allocate and monitor their retirement investments. If the man or woman is nearing retirement, it would be a wise idea for him or her to move to a target-date retirement fund. - to have a systematic investment strategy that can see them through retirement.
The basic concept of target-date retirement fund is to select a target fund with a date corresponding to the year of your retirement. You get a mixture of stocks and bonds made for someone of your age which becomes more conservative as you grow older.

These funds have two big benefits:
1) These reduce the possibility that you will sabotage your investment plan and tactics by moving your money around in reaction to the market's sudden ups and downs.

2) They simplify your way to spread your money in a broad range of investments
But, like all other funds and savings policies, you have to act carefully about taking to this fund. You should first need a very clear idea of your financial benefit from this fund before you jump into one.
The most important point: target funds do not all agree on what is an appropriate mixture of stocks and bonds at different ages. Naturally, funds from different companies who have the same retirement date may hold totally different concentrations of stock - and fare pretty differently when the market would take a dive.

Here are some examples: According to Morningstar, Oppenheimer Transition 2010 A (a fund developed for those people who will be retiring next year) holds 65% of its assets in stocks. All other funds designed for retirement investors of the same age like- T. Rowe Price Retirement 2010 and Vanguard Target Retirement 2010 hold 57% and 54% of assets in equities respectively……while MFS Lifetime 2010 A has less than 30% of its assets in stocks.
That difference in net amount of stock asset held by target funds implies that investors in these funds had totally different experiences as the markets went haywire over the past year. For the twelve months through January 9th, for example, Oppenheimer Transition 2010 was down 38.7%, compared to 24.8% for T. Rowe Price Retirement 2010,

Fact is, no "correct" percentage of stock should be in the 401(k) of the person who is getting closed to retirement. The more stocks you own, the bigger hit your portfolio is going to take when the market heads south. However, still you might want to keep more than 30% of your retirement portfolio in stocks; there are a lot of reasons for that like- the need to protect the purchasing power of your retirement savings over the long term or the desire to leave a legacy to your offspring.

Anyway, whichever investment process you pick up after u retire is entirely upto you based on your preference and faith. All you need to have is the ability to foresee the future of the funds or sectors wherein you invest and act more wisely for any investment. The more insight about investment market you gain, the more accurately you can foresee the outcome and performance of your investment in coming days the more successful investor you will gradually become-even after your retirement.


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