45: What Women Need to Know about Target Date Funds

<p class="p1">Today, Stephanie and Kevin explore the pros and cons of target date funds. They open in returning to an idea that’s fundamental to their podcast and their practice: When it comes to retirement, one size does not fit all. And though, in an ideal world, everyone would have the time, energy, and interest to properly diversify their investments, in reality, most people don’t. Target date funds are named as such based on the approximate date that an investor plans to start withdrawing money<span class= "s1">, and as the date approaches, the portfolio manager rebalances the fund to become more conservative.<span class= "Apple-converted-space"> </span></span></p> <p class="p2"> </p> <p class="p3">Kevin explains how they ‘de-risk’ your allocation by adjusting investments according to your target retirement date. Stephanie explains how these types of funds are used not only for retirement, but also for accounts like 529s, which are advantaged college saving plans. So, continuing with that example, as the date of writing the first check for college approached, the investments would become more conservative. In the time farther from that date, the investor is in the ‘accumulation phase,’ meaning with each paycheck, money is being added, and they don’t have to worry as much about their investments.</p> <p class="p2"> </p> <p class="p1"><span class="s1">They address the problems that target date funds present, like the inability investors have to differentiate short-term money from long-term money when they are pulling funds out. When you begin pulling money out, they recommend, it’s important to segregate your money in those categories.<span class= "Apple-converted-space"> </span></span></p> <p class="p4"> </p> <p class="p1">Stephanie then introduces glide paths, which is the <span class="s1">formula defining the asset allocation mix of a target date </span>fund<span class="s1">, and how target date funds associated with different years aren’t all that different, they’re just on different points of the glide pa