Target date funds have increased in popularity over the past few years. They are the lazy investors dream because they automatically re-balance your portfolio every year. Target date funds are very aggressive in an investor’s early years and become more conservative as you get closer to retirement. If you are interested in picking a good target date fund then this post will help you. Here is a list of my favorite target date funds for young investors.
Vanguard Target Retirement 2040 Fund
The Vanguard Group is known for its outstanding selection of high quality funds that come with low fees attached. The Vanguard Target Retirement 2040 Fund is great for investors age 30 to 35. The fund invests nearly 90% of assets in stocks, 10% in bonds, and a very small fractional percentage in cash and cash reserves. The fund has a 1 year average return of 10.2% and has returned 8.4% year to date. The minimum investment for this Vanguard fund is $3,000.
T Rowe Price Retirement 2045 Fund
This T Rowe Price Retirement Fund is perfectly configured for the 25 to 30 year old investor seeking capital appreciation and maximum risk. The fund has a 90% stock, 10% bond breakdown like the Vanguard Fund but the allocation is vastly different. The T Rowe Price 2045 Fund invests over 68% of fund assets in domestic stock funds, 17% in international stock funds, 4.5% in inflation focused stocks, 7% in domestic bonds, and 3% in international and high yielding bonds. The fund has a remarkable 18 3% return over the past year. The minimum investment for this T. Rowe Price Fund is $2,500.
American Funds 2050 Target Date Retirement Fund
The American Funds Target Date Fund is the most aggressive fund of the three listed here. The fund is most suited for investors in their early 20′s. 95% of assets are invested in stocks and the remaining 5% is invested in bonds. The breakdown is as follows: 45% in growth and income funds, 40% in growth funds, 10% in balanced funds, and 5% in income producing bonds. The fund’s 1 year return has been 10.29%. The account minimum to open an account is just $250.
The reason that I like these funds is because they have performed pretty well and have much lower expense ratios than the industry average. This is important because many target date funds have higher fee and expense structures than regular mutual funds.
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