The Issue with Target Date Funds

What Is a Target Date Fund, and what is the issue with Target Date Funds?
Investing is confusing. You know you need to own stocks, but which ones? How do you decide whether energy stocks or international equities are appropriate for you right now?
Then there’s fixed income. Should you go with corporate bonds or Treasurys? How should you divide up your portfolio among these different asset classes?
Young workers have to make investing decisions like these while scanning a menu of 401(k) fund options when they start their first jobs. Overwhelmed by unfamiliar choices, many spend less than an hour deciding on the fate of their retirement savings.
The chief appeal of target-date funds is their simplicity. Choosing a target date fund provides you with a well-balanced mix of stocks and bonds, with an asset allocation that rebalances towards more conservative investments as you age.
Buyers don’t need to keep on top of shifting markets-the fund managers take care of that-all they need to understand is the year they want to retire. The fund’s holdings periodically adjust to reflect your risk tolerance over time.
How Do Target Date Funds Work?
Investors choose a fund that corresponds to the year when they believe they’ll retire. A 25-year-old in 2022, for instance, may pick a 2060 target date fund.
The investment company packs the target date fund with well-diversified mutual funds and exchange-traded funds (ETFs) that are aligned with the risk tolerance appropriate for the investor’s current age. More than 90% of that 2060 option, for instance, will be held in stocks.
Once you pick a target date fund, you’re on what’s known as a “glide path,” which is a term of art to describe how the fund’s asset mix changes over time.
As you get older, the target date fund will typically shed some of its stock positions in favor of bond holdings. For instance, a 2020 target date fund typically allocates between 40% and 50% in stocks.
The Pros of Target Date Funds
Target date funds have exploded in popularity over the past decade.
About two-thirds of 401(k) plans offered target date funds in 2007, according to recent research by the Employee Benefit Research Institute and the Investment Company Institute. In 2019, this figure was almost 87%.
Just a quarter of retirement savers used a target date fund in 2007, compared to 60% just 12 years later.

[@savanah1407]

Do you have a video out already? That talks about how to be smart with taxes on the gains?

[@InvestwithWesley]

I have a few videos about personal taxes, business taxes, and the best vehicles to invest with depending on goals. They're maybe a year old but not much has changed so the info is still mostly correct!

[@savanah1407]

@@InvestwithWesley Awesoke! Thank you!