If you’re seeking a simple and secure way to save for retirement, look no further than target-date funds, says Ramit Sethi.
“All you have to do is buy that one fund and put as much money as possible into it,” the personal finance author, podcaster and TV host told Moneywise.
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Sethi is on a mission to help Americans “live a rich life” — one that doesn't include staring at stocks on a computer screen all day to try and score winning deals.
Rather, he says you can be a “very wealthy and successful investor” by automating your investments — giving you more time to spend on the things you enjoy and care about — and taking a long-term approach with a focus on diversification.
Target-date funds, he claims, are one of the “simplest” ways to achieve that goal. Here’s why the money maven thinks “boring” is best when it comes to investing.
What is a target-date fund?
Target-date funds, or lifecycle funds, are designed to be long-term investments for individuals with particular retirement dates in mind.
The funds are typically named for the date you plan to retire, for instance "Retirement Fund 2030." They're mostly mutual funds that offer diversification through a mix of stocks, bonds and cash investments.
“I love this investment option, it's so simple,” says Sethi. “It automatically includes diversified investments — stocks, bonds, et cetera … and over time, it will automatically become more conservative, which is typically what we want for older investors.”
As you progress towards your planned retirement, most target date funds will adjust their blend of investments to be more conservative, like switching out stock investments for a mix weighted more toward bonds, which are generally considered to be less risky.
“You're not sitting here looking at P/E (price-to-earnings) ratios, you just have your one investment and you’re set automatically every single month,” Sethi adds.
There are a few different ways to invest in a target-date fund. You can invest through a brokerage account or buy directly from a fund provider like Vanguard or Fidelity or as a common preset investment choice in many 401(k) plans.