Target-date funds are the best option for novice investors looking for a simple, hands-off approach, according to financial experts.
Target-date funds are the easiest way for novice long-term investors to get started, experts said.But investing — and doing so smartly — doesn't have to be hard. In fact, getting started can be relatively easy, according to financial experts.
"I think they're a fabulous, simple solution for novice investors — and any investor," said Christine Benz, director of personal finance and retirement planning at Morningstar. Asset managers automatically throttle back risk as investors age by reducing the share of stocks in the TDF and raising the exposure to bonds and cash.TDFs are a good starting point for"do nothing" investors who seek a hands-off approach, said Lee Baker, a certified financial planner and founder of Apex Financial Services in Atlanta.Benz recommends selecting a TDF that uses underlying index funds.
But this allocation is static: It doesn't change over time as with TDFs, meaning investors may eventually need to revisit their choice. They can determine which fund might be a good starting point by filling out an online risk profile questionnaire, Baker said.As another option, investors may instead opt for a global market index fund, an all-stock portfolio diversified across U.S. and non-U.S. equities, Benz said. As with target-allocation funds, these funds don't de-risk as one ages.
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