Sometimes, the supposedly easiest ways to go about things isn’t the best. Target-date funds, for example, have proven to be quite the risk after last year’s market crash despite being one of the easiest ways to invest for retirement.
In a nutshell, here’s how one gets into target-date funds say you’ll be retiring in 20 years so you invest in an company’s offering for that specific target date. The company then invests your money aggressively in stocks before moving it to most bonds as the target-date nears.
Because of its aggressive investment in stocks, the market crash gave target-date funds a huge beating with several groups losing as much as 40% of the funds’ value for their investor in 2008. If that’s all one has to retire on, that’s more than bad news indeed.
Some argue that the rise in the stock market over the past three months have given target-date funds a fighting chance. The S&P index has risen by as much as 36% since reaching 13-year lows earlier in the year.
While money managers would say that these funds are still the easiest way to manage your retirement, other analysts argue that the recovery might be too late for those whose target-date funds are pegged as early as next year.
