If you are just starting out a 401k plan at work then this is for you. Itâ€™s real easy to reap the benefits of a well-made portfolio, without doing all the research and without having to consistently update it. If you just donâ€™t know enough to pick and choose your own stocks (like me) then you have an alternative.
Life Cycle Funds
A life cycle fund simplifies investing for the long term by evolving as you become closer to your retirement. You get the benefits of a diversified portfolio, without having to do the research and what not.
A Small Warning
To fully benefit from one of these maintenance free accounts be sure you keep these key points in mind:
- When the economy goes bad donâ€™t bail, they are for long term!
- Watch out for management fees
- Donâ€™t invest in other funds; it offsets the benefits of a balanced portfolio
I have 40-some years to retire (worst case scenario-since I plan on being a millionaire way before that) and my 401k plan offers a fund just for my age group. Its called the Fidelity Freedom 2040 Fund (FFFFX). Since Iâ€™m young, the â€œfinancial expertsâ€ recommend that us 20 year olds put our retirement savings in high-risk accounts (mostly stocks), so this fund does just that. Over time you would want to gradually shift to less risk until you finally reach retirement age where you end up with little to risk. This fund evolves with you! Itâ€™s becoming a trend and I bet a lot more people jump into these funds when word gets out.
Donâ€™t Believe Me?