After how much should I save for retirement? The most common question employees ask us is how they should invest their accounts. The 401(k) plans we advise typically offer a list of investment options, usually mutual funds invested in cash (money market or stable value), debt (bond funds) or equities (stocks – pieces of company ownership). Each of these performs differently, have different track records of historical performance and different risk factors (price fluctuation).
To simplify your decision making process we recommend you take advantage of what your plan offers here – usually one of two options.
Many plans offer risk based or asset allocation models. The key here is your answering a short questionnaire that will identify the model you may feel most comfortable in.
The second option – that has become increasingly popular in the last several years – is investing in a target date fund.
Target-date funds are intended to offer a lifelong managed investment strategy through a single outcome-oriented fund.
These funds are offered usually in 5 year increments (e.g. 2020, 2025) and the idea is to select the TDF that most approximates your planned for retirement date.
Target-date funds’ asset allocation mix typically provides exposure to equities in early years when risk capacity is deemed to be higher, and becomes increasingly conservative as time progresses with exposure switched progressively towards capital-preservation assets, such as government bonds and cash.
The idea behind a TDF is to offer you one investment option that will be suitable over the course of your working years and sometimes over your entire lifetime. The target date is the approximate date when investors plan to start withdrawing their money. The principal value of a target date fund is not guaranteed at any time, including at the target date.
The whole point here is to help you invest using a disciplined process without you having to become an expert in investments.
If you have questions on how to invest your account we are glad to help; fill out the box below, or call or email us. We’re ready to help.
The material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material. No investment strategy, including asset allocation assures success or protects against loss.