By Allen Giese, ChFC®, CLU®, ChSNC®
Did you ever look at all the various investment choices in your deferred comp or 401(k) and wonder which funds you should be investing in? Which ones are going to produce the golden egg—the best outcomes? I’m going to let you in on a little secret in this video.
I remember those days before I was a financial planner when I’d look at my company plan and just be confused. It seemed so much like I was just basically throwing darts when I was picking the funds to invest in.
Well, today, I’m going to let you in on a little secret that might make things a whole lot easier for you and, hopefully, give you a better overall investment experience.
So first off, what’s it all about? What are you trying to do when you are picking the right funds to be in?
When I finally realized that it’s not about trying to guess which funds are going to outperform the others but more about creating an investment account that is globally diversified, investing in stocks and bonds all over the world, and keeping that account balanced and doing it all for as little cost as possible—that’s when it got easier and my experience as an investor got a whole lot better.
And here’s another big part of it: doing it all without having to spend a lot of time doing it. Because, let’s face it, you’d probably rather be doing something else.
All right, so here’s the secret. Take a look at those target-date funds in your plan, if your plan offers them (and most do these days). Compare the level of diversity and costs in those accounts to trying to do the same without using those accounts, and I’ll bet you’ll be hard-pressed to do better.
The target date funds are usually called something like Target Retirement Date 2040 Fund, where the 2040 is the date you are roughly targeting for retirement. The longer out that date is, the more aggressive the fund will be—which basically means the more equities and stocks will be in the fund vs. a fund with a shorter-term target date.
I find when I try to build a better, more diverse, lower-cost lineup of funds using the other funds the plan offers, as compared to the target-date funds—well, for most plans, they just don’t offer the choices I need to do better. And even if they did, I’d still have to regulate it and stay on top of it to keep it balanced.
So next time you find yourself trying to guess which funds you should be in for the best long-term outcome, don’t look past those target-date funds. They may be the best choice in the plan for you.
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