Flying a Kite on the Beach

The Easiest Way to Invest for Retirement

We have talked about automatic investments many times on this blog.  I am a big fan of setting up a system that takes money straight out of your paycheck and puts it away for the day you call it quits.  However, people often get nervous about investing their retirement savings.  I have a couple of suggestions that you might enjoy.

There is a type of fund built specifically for you.  I know, you probably think “nothing is done just for me.”  If you plan to retire at any time in the future, there is a mutual fund just for you.

Most large investment companies offer what are often called target date or destination funds.  Each fund is tailored specifically to the investment needs of someone with a retirement goal of 20xx.  I am invested in a fund called “Destination 2050” for people who will be 65 around 2050.  There are Destination 2010, 2015, and so on where my 401(k) is stored.

The target date funds take out the guesswork in investing and asset allocation.  As you age, the fund will be tailored for your risk profile.  In your 20s, the funds invest almost exclusively in stocks.  Later on, it moves toward fixed income (bond) securities and funds.  As you near retirement, your investments are slowly moved into cash and treasuries, the safest, though lowest returning, investments.

I have a friend who was not putting money into her 401(k) because she didn’t know what fund to pick.  The target date funds are “funds of funds.”  The managers pick the funds for you to make it easy.  If you are not sure what to put your 401(k) or IRA investments into, seriously look at funds like this.  It is easier to have someone else pick stocks and mutual funds for you.  At least I think so.