Don’t Rely On Target-Date Funds

Remember when we said that younger people should focus on more aggressive portfolios whereas older individuals should take more conservative approaches? Well, in theory, this is where target-date funds come into play. You will find that these options are abundant when it comes to 401(k) plans, but should you rely on them?

Again, in theory, they sound good. That’s because they help allocate your funds based on your age. The younger you are, the more aggressive the approach. But they do not take risk tolerance and personal investment objectives into account.

Individuals who are nearing retirement and already have plenty of conservative options in their taxable investment accounts may want to focus on higher risk methods when it comes to their 401(k), and target-date funds do the exact opposite, so relying on them blindly could be their downfall.