As with any milestone in your life, your retirement
date should be made with careful thought given to all the factors involved. The
factors that affect your retirement are different from those of anyone else. Your
financial goals and objectives, age, health, financial position, risk
tolerance, and family needs all play a role in your retirement decision.
The response to the confused
retirement investor has been the creation of target date mutual funds. These funds
are easy to spot among the listing of mutual funds, because the fund's
name includes the retirement year - for example Fidelity Freedom 2025 Fund. Don't expect to find a mutual fund for every year - they are usually
offered in five year increments.
Target date funds contain an asset mix of stocks,
bonds and cash. Each of these categories has risk associated with it.
Generally, the more risk you assume, the higher the return. The relative risk
pyramid below shows various investment choices ranked from highest risk and
potential return at the top of the pyramid, to the lowest risk and potential
return at its base.
Highest risk & return
Options, futures, low-priced or "penny"
Small-cap stocks, low quality stocks,
collectibles, mid-cap stocks, low quality or "junk" bonds, specific
industry/sector mutual funds
Quality growth stocks or mutual funds,
large cap stocks or mutual funds
|Lowest risk & return
High quality convertible bonds or High
quality convertible bond mutual funds, high quality preferred stock or high
quality preferred stock mutual funds, balanced stock and bond mutual funds
Money market accounts or money market
mutual funds, high quality corporate bonds, high quality corporate bond
mutual funds, high quality municipal bonds or high quality municipal bond
U.S. savings bonds, U.S. treasury issues,
federal agency securities, insured savings and checking accounts, insured
certificates of deposit
The fund changes its investment mixture and becomes
more conservative as the target date nears. The goal of these funds is to
provide the right blend of growth and principle protection of your money for
when the target date arrives.
As mentioned earlier, each retirement need
is different for each person. A fund's allocation may not match your
individual the risk tolerance and financial objectives. Risk tolerance is your tolerance to assume risk.
You can discover your risk tolerance by completing this questionnaire.
You can compare your ideal asset allocation mix against that of various mutual
fund companies - as they vary from fund to fund even when they have the same target
date. To find and compare target date mutual funds, start at Yahoo's mutual
fund center. Enter your planned retirement date and click the "search"
button. As seen to the right. Yahoo then displays all matches for your search
Once here simply click on any of the blue underlined
fund ticker symbol on the left side of the screen. You will be taken to the
screen shown. Almost there, now click on the "Holdings" link on the left side
of the screen. Now you are at the "Overall Portfolio Composition (%)" for your
fund. This is where your print
out of funds matching your retirement date comes in handy. Enter the symbol of other
mutual funds that interest you from the list into the "Get Holdings
for:" area on the right side of the screen.
Note the composition
for each fund portfolio and the one that most closely matches your ideal asset
allocation mix will let you sleep the best at night.
Seeking financial education and careful planning can make this
milestone in your life a success. Consider
a FREE subscription to the Retirement Intelligence Information
Services newsletter to keep informed of the latest retirement
news and education topics like this article has demonstrated. As George
Santayana said, "The
wisest mind has something yet to learn."
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