| Arguably one of the most important | | | | date will normally have a day or year in mind. |
| considerations when putting together an | | | | Again, depending on the length of time, the initial |
| investment plan is the asset mix. This simply | | | | portfolio may be more aggressively invested with |
| means determining how much of your money | | | | a large growth component if there is more time |
| gets invested in growth investments, how much | | | | and more conservatively invested in cash and |
| gets invested in income-producing investments | | | | cash equivalent securities as that target date |
| and how much will sit on the side lines in cash. The | | | | approaches. |
| general theory is that the longer time one has to | | | | The great benefit to target date balanced funds is |
| invest, the more risk or growth assets one can | | | | that investors can really invest and forget about |
| and should hold in their investment portfolio. | | | | their portfolio while be confidently aware that the |
| As time passes, however, the investor will have | | | | risk profile of their investment will align with the |
| less and less time, meaning that the riskier assets | | | | shifting risk tolerance as their retirement or other |
| should be scaled back and more conservative, | | | | "due date" approaches. |
| income-producing assets should be purchased to | | | | The disadvantage to these types of portfolios is |
| replace those higher risk assets. This results in | | | | that they typically come with a higher |
| greater attention being spent on the investments | | | | management fee. The end result is that the |
| as the target date approaches, whether it is for | | | | investor pays marginally more for the service and |
| something big and long-term like retirement or | | | | that higher fee ends up impacting total returns |
| something smaller and short-term like purchasing a | | | | over the years. As well, some target date funds |
| car or home. | | | | where the underlying securities are actually mutual |
| To accommodate the shift in asset mix as | | | | funds do pose the risk of over-exposure to |
| investors age and get closer to their target date, | | | | particular securities; while this is not a large risk in |
| almost every mutual fund company now offers | | | | the short-term, if the target-date fund manager |
| target date balanced funds. In reality, these are | | | | does not monitor the underlying funds and make |
| normally portfolios of securities or even individual | | | | adjustments where needed, the investor will often |
| mutual funds depending on the managing | | | | find themselves subject to heightened risks of |
| company. Either approach will work fine, but when | | | | loss, never a good thing. |
| the underlying portfolio consists of actual mutual | | | | Ideally, target date investments exist to make life |
| funds, investors should do what they can to | | | | easier and simpler for the investor. In theory, this |
| ensure there is no overlap among funds that | | | | will always be true because asset mix is strictly |
| might over-expose the portfolio to one security | | | | adhered to and the aggressive stance of the |
| or another. | | | | portfolio will properly adjust as the target date |
| The idea of a target date balanced fund is that | | | | approaches, a task that most investors overlook |
| the asset allocation will shift with time. The target | | | | or simply ignore. |