Target-date funds make it easy for investors to choose a fund that mirrors their retirement date. However, don’t be fooled by this simplicity—these funds are not a one-size-fits-all strategy.
You need to review the fund’s allocation of stocks, bonds and cash, to ensure the level of risk meets your investment strategy. Are you comfortable with the risk, remembering that returns are not guaranteed but depend largely on market performance? And you should be aware that the percentage of equity exposure among target-date funds from different fund families can differ significantly.
Here is an example of two funds, both with a target date of 2030 but with different equity percentages.
According to recent underlying-fund reports, the Vanguard Target Retirement 2030 Fund had about 77% in equity and 23% in bonds, while the Fidelity Freedom 2030 Fund had about 86% in equity and 14% in bonds.
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