MONEY HACKS: Is a Target Date Fund the Best Choice for You?

During periods of market uncertainty, we often ask ourselves, am I investing the right way? It’s an important question and, when it comes to investing in your retirement plan, many of us have a “do-it-for-me” or target-date fund option. This kind of investment strategy is a managed portfolio (typically using mutual funds) whose asset allocation, or mix of stocks, bonds, and cash, automatically rebalances to match your time horizon. This means that the TDF, generally, becomes more conservative as you (the investor) near retirement.

In this MoneyHacks episode, I discuss whether it makes sense to have a “do-it-for-me” option during market volatility and other strategies that might be right for you.

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Video Transcript:

Hey, this is Alex Assaley it’s episode number 98 of Money Hacks I guess I’m a little enthusiastic despite everything that’s been happening in the markets, and in the economy, there’s no way to sugarcoat it.

It’s been a bad year for investments, a bad year for stocks, and one of the worst years on record for bond investors, and that has left a lot of 401k investors and employees at many of the organizations we serve with nowhere to hide. Both stock investments are down over 20% year to date through Q3 and bond and fixed-income investments are down double digits in many cases as well.

Obviously, that keeps us worried, it keeps investors concerned, frustrated, anxious and in many cases, it makes you wonder, should I be doing something? Am I investing the right way? I went into one of these investments that were supposed to be managed for me, like a do-it-for-me investment, like a target date or a managed account or a risk portfolio, and it’s down a lot and I’ve lost a significant amount of money.

What should you do? Should I go in and pick my own investments or other investors they say, you know what it doesn’t make sense to have all the money all in one mix I’m just going to do it on my own. While neither of those things is wrong or right or inherently good or bad, we definitely want to stress that even in periods like this where we’re seeing a pretty significant downturn in the markets, those do it for me type of investments, the ones you’re often defaulted in if you’ve been automatically enrolled in your 401k or 403b or if when you first were getting started in planning, you said, You know what? I don’t have the time or interest or inclination to pick my investments, somebody just go and put me in the one that’s right for my age. Those investments tend to be, while some people might define them as boring or easy, they tend to be a pretty appropriate mix for the vast majority of investors.

Right now, in the financial services industry, in the retirement space, in particular, there’s a big debate going on whether target date funds are the best options or whether these new personalized managed accounts are a more prudent and more customized way to help you invest and I think both of them can have merit and can be the right type of vehicle for the right type of investor. It’s really about some factors that are most important to you and the information you can provide your 401k platform.

But I want to stress that even in periods like this, where perhaps your portfolio is down a pretty significant amount maybe the most you’ve seen it down in several years, and going back to 2008, 2009, which was really the last time we saw a major market sell-off like this those do it for me solutions, again, tend to be really appropriate, really right allocations for the vast majority of investors.

So, if you’re in one of those, and you’ve enjoyed the performance and the market going up over the last several years and now in 2022, having a bit of a roller coaster and you’re getting a little worried, rest assured it’s probably still the right fit for you, but ultimately this is a good time to review your investments review your mix, and if you’d like to set up a time with our team to look more into that, to analyze how to build the right portfolio and investment strategy for you and your long-term financial goals. Connect with us on social, reach out via email, and we’re here to help. Thanks! Hope this helps. See you soon.