Once you get past weighing the merits of a 401(k) or a Roth IRA, for example, then you have to choose individual investments to actually put your money in. Most people don’t have the first clue. That’s why I’ve compiled my investment guide to give you a starting point. Check it out at ClarkHoward.com/invest.
Target retirement funds make investing easy
I’m a big fan of targeted retirement funds, which offer a very hands-off approach to retirement planning.
With targeted retirement funds, you begin by picking the year you expect to retire — let’s say 2040. Then you buy the 2040 portfolio and sit back. That’s it. It’s that easy.
Over the next 30 years, the company you choose picks a mix of stocks and bonds to get the best returns with the lowest overall risk. As as a general rule, your investments automatically become less risky the closer you get to 2040.
Several years ago, Forbes reported there were 289 different targeted retirement funds in the marketplace. So which company offers the best?
That would be Vanguard. This financial house offers no load mutual funds; no hidden 12b-1 fees; and management costs that are about one-sixth the average of other companies.
T. Rowe Price and Fidelity Investments are also good places for your targeted retirement funds. You can’t go wrong with any of these three low-cost investment houses.
In addition, there’s one called Blackrock that a lot of people have through work. That’s perfectly acceptable too.
The most important thing with targeted retirement funds is to make sure your annual management fees are less than .5% per year. That’s the absolute ceiling.