A. If you don't know how to invest your 401k money, then target-date retirement funds could be a solution.
What is a Target-date Retirement Fund
A target-date retirement fund balances risk with the number of years until your retirement time. It has diversified asset mix and the mix changes over time, from a more aggressive investment mix for younger investors, to a more conservative mix for older investors.
If you select the target-date retirement fund route, it's best to invest your entire 401(k) savings in a single fund because otherwise the money not in the target-date funds will skew your portfolio allocation making it not optimal for your target retirement time.
Which Target-date Fund is right for you?
You can choose a fund-based on your year of birth and expected retirement date. The funds are named for expected retirement years in five-year increments. For example, if you were born in 1986, you might choose to invest in the 2050 Fund, because you will reach age 65 around the year 2050. Worried about messing up the math on your age? Simply choose this link to select your current age, and the tool will suggest a Focus Fund.
A Few Creative Ways to use Target-date Funds
While the funds are designed so you can invest in just one fund, you have some options …
- You could invest equally in the two funds before and after your targeted year of retirement if you couldn't find the target-date fund of your desired retirement year.
- You could choose a fund with a target date further in the future, if you’re more risk tolerant.
- You could choose a nearer-dated fund, if you’re more risk averse.