Lifecycle Funds for retirement -- Careful!
TheStreet.com has a good reminder piece about "Lifecycle Funds", funds that are supposed to help less investment-savvy folks get to a happy retirement with no fuss investing. One of the most important aspecsts of the funds are that they are standalone offerings that maintain an appropriate asset allocation over time. Also, although you can invest in these funds outside of retirement accounts (401(k), IRA, etc), the piece mentions that the funds are gaining traction in retirement plans. Therein lies the rub, however. If you invest your retirement account nest egg in one of these funds and the funds are already allocated across the right assets, how do you allocate the rest of your non-retirement funds?
Other suggestions they provide:
UPDATE: I should note that I personally would never consider one of these because I enjoy managing my money too much. They may be a reasonable option for conservative / risk adverse and/or folks that do not understand investing, asset allocations, rebalancing and the like.
Other suggestions they provide:
- Own only ONE Lifecycle fund. (owning more than one doesn't make sense to most people)
- Make sure expenses are much less than 1% (Vanguard is .25%)
- Since not all funds have the same asset allocation or rebalancing strategy, choose one from a fund family that matches your risk tolerance. Some might be more aggressive, some less.
UPDATE: I should note that I personally would never consider one of these because I enjoy managing my money too much. They may be a reasonable option for conservative / risk adverse and/or folks that do not understand investing, asset allocations, rebalancing and the like.
posted by fin_indie @ 9/12/2006
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2 Comments:
At 1/10/2007 12:10 PM,
Anonymous said…
This is also a good option for people who may understand allocations, rebalancing, etc. but do not have the time/inclination to attend to their assets. I somewhat fall into this bucket. I completely understand it (in fact, I design systems/products for Financial Advisors - that's my job), but don't have much time, or priority, to attend to my investments.
I don't own any of these myself, I have an advisor tending to my money (I used to be in Vanguard Index Funds, I think that's a great way to go) because with a 2 year old, full time job, lots of travel, etc. I just can't do it 'well'. Jean_2Mgoal
At 1/10/2007 12:53 PM,
fin_indie said…
Hey, thanks for the comment. Yeah, I understand the "no time" arguement, but understand that you're essentially paying a "convienience charge" for these funds. Many of these funds are bundles of the fund family's own funds, which may be managed funds with fees. The trade off is: work more to make enough to cover the fees vs. work less and buy equivalent underlying investments yourself. Each has to decide for themselves which way to go.
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