Question: I’m 24, and I’ve been investing in a target-date fund in my 401(k). I’ve lost a lot of money and have been reading that it’s good to “rebalance” everything in the 401(k) after losing money. Does that apply to target-date funds? - Matt, Phoenix
Answer: If your only investment is a target-date fund - a mutual fund that has a date in its name - you do not need to do any rebalancing because you have a professional fund manager doing all the tinkering for you.
That is the beauty of target-date funds. You plop all your 401(k) money into a single mutual fund and let the manager handle everything else. The manager’s job is to select a mixture of stock and bond funds geared specifically to a person like you, with a plan to retire in a particular year.
So if you plan to retire in 2050, you probably selected a target-date fund with the number 2050 in its name. And the manager of that fund probably has invested about 80 percent or 90 percent of your money in stocks so that your money grows a lot when the stock market goes up. The remaining 20 percent or 10 percent would be in bonds, a safer but usually slower-growing investment.
But some people use target-date funds incorrectly. They put money into stock mutual funds and bond mutual funds in addition to their target-date fund. If you do that, you would need to examine your mixture of stocks and bonds and rebalance - adjust how much money you are …
Read the original article at Philly
Related Posts
Tags: Business, finance, fund, Job, money, Personal Finance, stock
