Sunday, August 16, 2009

Target Retirement Funds

A question I often get asked at 401(k) enrollment meetings: "So where do I put my money, because I know I should start saving. But I knowzip about investing." ...

There are long-winded answers and short answers, and I've given both. But often I tell people: "You don't know anything, then go find somebody who does ... or do some self-education ... or put your money in a Target Retirement Fund and let somebody who claims to be good at asset allocation (where you put your money) do the allocating."

There are no perfect answers. Most of the financial experts missed the melt-down of last fall because the phenomenon causing it -- hyper-leveraging -- hadn't happened in a long time, and few people are psychic.

Added to which, all or most asset allocation funds took a hit because almost every type of financial asset ... with the exception of Federal bonds ... took a hit ....

Late last year the TAG 401(k) Pension Savings Plan pushed to get Vanguard Target Funds into its list of investment options because what we had was way underperforming. Another reason was because the costs were much lower, around .2% of assets. Vanguard keeps it simple and inexpensive by bundling a lot of its low-cost index funds together.

The lineups of its various Target Funds include all or most of the following:

* Vanguard Total Stock Market Index Fund

* Vanguard Total Bond Market Index II Fund

* Vanguard Inflation Protected Security Fund

* Vanguard European Stock Index Fund

* Vanguard Pacific Stock Index Fund

* Vanguard Emerging Markets Stock Index Fund

* Vanguard Prime Money Market Account Fund

Happily, whatever Vanguard is doing seems to be reasonably effective. Consumer Reports recently ran a comparison of a number of different retirement funds, and Vanguard was highly competitive in CR's rankings.

I've got one basic rule: It's important to tuck money away for later, and contributing to a 401(k) Plan is a relatively painless way to do it. Where you stick the money is something to decide based on your risk tolerance. (If you burst into tears and throw up a lot when you lose money in the stock market, maybe its a good idea not to put a lot of money in the stock market. But please put it somewhere.)


Anonymous said...

I owe 117,000 on my mortgage. I'm 41 and I have 65,000 in an Ira. I was giving an option to take out the 65,000 and apply for a loan for 60,000 dollars and pay my mortgage off. Does this make since with the penalties I would be paying?

Please Advise

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