Target Funds Put Your Retirement Investing on Automatic Pilot

A target fund is a mutual fund designed for a specific retirement age. For example, a fund with a target date of 2010 is for the investor who plans to retire in 2010. A 2045 fund is for the investor who will retire in 2045. A target fund, which is a collection of mutual funds, are appropriate for the investor who is not interested in taking the time to select stocks and bonds for his or her portfolio.

Most target funds are composed of mutual funds offered by the provider. So a Fidelity target funds includes other Fidelity mutual funds. A fund with a target date many years in the future holds more stocks than bonds. A fund that is near the target date has more bonds than stocks. So as the fund gets closer to the target date, it becomes more conservative. Once a fund reaches the target date, it continues to reduce the stock portion. Typical target dates are: 2005, 2010, 2015, 2020, 2025, 2030, 2035, 2040, 2045 and 2050. Some funds offer one-year increments.

Many mutual fund companies offer target funds so before you buy one be sure to check the fee schedule because fees reduce your total return. Vanguard Target Retirement funds have very lows fees. Also, the mix of stocks and bonds varies from provider to provider for the same target date. Some providers are more aggressive so you have a range of stock and bond allocations from which to choose. If you are nearing retirement but you want to own more stocks than bonds, select a target fund that will mature several or many years after you retire.

Here are five large mutual fund companies that offer target funds:

Fidelity Freedom Funds
Putnam RetirementReady Funds
TIAA-CREF Lifecycle Funds
T. Rowe Price Retirement Funds
Vanguard Target Retirement Funds