Know the Smooth Path Before Buying a Fund With a Target Date
Investing doesn’t have to be difficult, and fixed date funds are great for simple investing that doesn’t require much maintenance. But you still need to know what you are getting yourself into. One of the features of a fixed date fund that is worth looking into is its sliding track.
Basically, the sliding path is how the assets of the fund change as the set date approaches. Overall, the fund is moving towards a more conservative allocation as we approach this date. After all, it is assumed that you will probably collect the money soon. So a safe, conservative investment makes sense. But depending on your goals, you may need a different path for your foundation. US News explains:
Some funds are designed to be almost entirely cash at maturity, and such funds are called “retirement funds.” They are more focused on keeping your investment stable as one of their main goals is to minimize the chance of losing principal at the end date. Another type of set date fund, known as retirement funds, is for investors who want their money to stay in the market after you reach a target date. Retirement doesn’t mean you don’t need to keep building your assets , right? The advantage of this type is that it reduces the likelihood that you will outlive the amount of money you have, which is known as the “longevity risk”.
Again, this depends on your financial goals as you approach retirement age. But the bottom line is this: Before investing in a fund with a set date, know what happens to your assets as you approach the date. Check out the full post for more details.
3 Questions to Ask Before Choosing a Set Date | US News & World Report