Although these funds can effectively put a retirement portfolio on autopilot, they often reward you with lower returns in the long run.
For people who aren't going to follow investment markets, learn how to invest, and take a hands-on approach to their retirement, target-date funds are helpful. They're even a smart move for people who are inclined to frequently change their fund allocation inside their 401(k).
Nothing special happens with a Target Retirement Fund when it reaches its target date. The fund doesn't stop investing, and you don't need to take your money out of the fund. The gradual move from stocks to bonds simply continues.
We rate Fidelity's best actively managed funds that are popular in 401(k) plans, including its target-date solutions. Fidelity is all about good stock picking. ... In this year's survey of popular 401(k) funds, which comes courtesy of financial data firm BrightScope, 17 funds from Fidelity rank among the top 100.
Several advantages of target-date funds include: Low minimum investments, allowing for instant diversification among various asset classes (equities, bonds, etc.) Professionally managed portfolios, offering a hassle-free investment. Low maintenance, as the funds are designed as a one-size-fits-all solution.
When to consider choosing a target-date fund
Since target-date funds can offer a lot of diversification own their own, it can be a good option for employees starting a new job. Even if you're maxing out your 401(k), if you have a handful of funds, the amount allocated to each might be quite small.
Tips for Choosing a Target-Date Fund
They Only Work While Working: Target Date Funds are also only designed to be used when accumulating wealth for retirement. Once you reach the date, the portfolio doesn't change into one where you can withdraw from it easily. ... Most Target Date Funds simply stop changing the allocation at the Target Date.
Target-date funds do not stop when they reach the target year. For example, Vanguard Target Date 2015 (VTXVX) still exists today even though it is 2020. Your dollars will not disappear! Instead, target-date funds are designed to continue to serve the assumed age demographic of a specific retirement year.
Factors That Affect Target-Date Fund Taxation
Target-date funds tend to be more tax efficient, in general, because they often use index funds to achieve their target allocations. ... Since many target-date funds own international stocks and bonds as part of their portfolio, the foreign tax credit may come into play.
The Top Target-Date Funds
Overview: Best low-risk investments in 2021
The best-performing Fidelity funds for retirement:
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