Mary: This is Mary Walden with economist MW, welcoming you to the economic perspective. Today’s program asks, what are target-date funds? Mike, for many, the investment world is confusing. It’s often hard for investors to know when to make decisions and what decisions to make. I understand one kind of investment tries to eliminate these issues. What is the investment, and what are its pros and cons?
Mike: Summary Answer
- Investment advisors agree on two principles: should diversify your investments, and should change the mix at key points in life
- Target-date funds aim to do both
- First, will put your money in several categories of investments – stocks, bonds, money market funds, etc.
- Second, will change the mix at keys ages of the investor
- Example – move away from riskier – yet higher return – investments to safer, but lower return investments as move closer to retirement
- Supporters say many investors don’t do this, so target-date funds do it automatically
- Detractors say too rigid – changes should take account of market conditions
- But, an option to study
- I’m MW
Mary: And I’m Mary Walden for the North Carolina Cooperative Extension Service