Hey there, fabulous women! If you don’t have a retirement plan set up or you’re not sure how you can save for your future, let me introduce you to something that can set you on the path to financial security—Target Date Funds.
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Why This Matters for YOU
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You might be thinking, “It’s too late for me. I didn’t save enough,” but that’s a myth! It’s never too late to start. Today can be the day you take control of your financial future, and I’m here to guide you through one of the simplest ways to invest for retirement: the Target Date Fund.
Target Date Funds are designed to help reduce your risk over time while giving you the opportunity to grow your retirement savings. And the best part? You don’t need to be an expert in investing to make it work.
How Target Date Funds Work
These funds are set up to gradually adjust their asset allocation (stocks, bonds, and other investments) to become less risky as you approach your retirement date. They make investing simpler by reducing the need to constantly manage and adjust your portfolio.
Here’s how it works:
Target Date Funds are typically set up in five-year increments—2030, 2035, 2040, and so on. You simply pick the one that aligns with when you plan to retire. For example, if you plan to retire in 2040, you would select a 2040 Target Date Fund.
Here’s an Example
Let’s say you’re just entering the workforce at 22 years old and you plan to retire at 67. You might choose a Target Date Fund for 2070.
At the start: The fund would invest heavily in stocks (higher risk) to maximize growth over the long term.
As time goes on: The fund would gradually shift towards bonds and other safer assets to protect your investments as you near retirement.
This gradual adjustment is called the “glide path,” which ensures your investments shift as you get closer to retirement.
or
Let’s say you're 55 years old and plan to retire at 67. You might choose a Target Date Fund for 2037.
At the start (55 years old):
The fund would still have a significant portion invested in stocks, aiming for higher growth. At this stage, you’re looking for strong returns, but you have time to weather market fluctuations.
As time goes on (closer to 67):
The fund would gradually shift toward more conservative investments like bonds and other safer assets.
This is done to protect your investments and reduce the risk as you get closer to retirement, ensuring you’re not exposed to too much volatility when you’ll need to start drawing from those funds.
By the time you reach retirement, your assets would be more stable, giving you peace of mind as you transition to using those funds.
The Benefits of Target Date Funds
Simplicity: Choose a fund based on your target retirement date and let the professionals handle the rest.
Automatic Adjustments: The fund rebalances itself over time, reducing risk as retirement nears.
Diversification: Target Date Funds invest in a broad mix of assets, giving you exposure to different sectors, which can help spread out risk.
Things to Consider
While Target Date Funds can simplify the process, it’s important to understand their potential downsides.
Risk: There’s no such thing as a risk-free investment, and Target Date Funds can still be impacted by market fluctuations.
Uncertain Returns: Just like any investment, there’s no guaranteed return, so it’s hard to predict exactly how much you’ll have when you retire.
Ongoing Monitoring: Even though they adjust automatically, you still need to keep an eye on your fund to ensure it’s on track with your retirement goals.
Different Approaches to Target Date Funds
There are a few types of Target Date Funds, and each works a bit differently:
Active: These funds are managed by experts who choose specific investments.
Passive: These funds aim to mirror the performance of a market index, like the S&P 500.
Combination: Some funds use both active and passive strategies to find a balance.
Target Date Funds vs. IRAs
If you’re wondering how a Target Date Fund compares to an IRA (Individual Retirement Account), here’s the difference:
IRAs allow you to save for retirement in a tax-advantaged way, but you still need to pick the investments yourself.
A Target Date Fund is an investment strategy that you can use within an IRA or in a standard brokerage account, and it automatically adjusts your investments for you.
How to Get Started with Target Date Funds
Getting started with a Target Date Fund is easier than you think! Here’s how to begin:
Find the Right Fund: Look for Target Date Funds through brokerage platforms like E*TRADE or other financial services.
Select Your Retirement Date: Pick the Target Date Fund that aligns with your retirement plans.
Let It Work: Once you’ve invested, sit back and let the fund adjust your portfolio over time.
Ready to Start?
Ladies, it’s time to take action. If you don’t have anything set up for retirement, don’t wait another day. You have the power to start building your future, one smart decision at a time.
Let’s do this—your future self will thank you!
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We will be talking about emergency account/funds too because that's a biggie....stay tuned. Please give me feedback on this Series - do you find this helpful?
Let’s get unstuck together!
—Heather
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