If you’re like most people, investing may not be your favorite activity. You might find it confusing, overwhelming, and maybe even frustrating. And yet, if you don’t have any savings for retirement or a solid plan in place for the future, then it’s something that needs to become a priority — now.
Target Date Retirement Funds are marketed as an easy way for investors to have access to professional money managers who invest on their behalf and potentially help guide their financial future. The idea is to make investing simple, easy, and mindless. Target Date Funds typically make investment changes within the fund itself as the investor ages and gets closer to retirement age. This also means that investors may not be getting the best rate of return or access to investment opportunities that might be better suited for their individual needs.
However, are target date retirement funds the best type of investment to consider as you prepare and plan for retirement? The answer to that question is not as clear-cut as you might think. While target date funds can be a good option for some investors, there are other means that may be better suited to your needs. This post will take a look at target date retirement funds as well as other options that might make sense for you as you decide what’s best for you and your retirement savings plan.
What is a Target Date Retirement Fund and How Do They Work?
Most target date retirement funds are in employee sponsored retirement plans such as 401k or 403b plans. Target date funds became popular in the mid-2000s and have been the investment of choice for many plan sponsors and participants since they allow the participants to invest in one fund. The fund changes its asset allocation over time as the investor nears retirement. Theoretically, this allows an investor to focus on other aspects of their life and not worry about managing their retirement portfolio too much.
When someone invests in a target date retirement fund, they are investing in a portfolio that is made up of many different mutual funds. The underlying mutual funds are selected by the fund manager. The fund manager will choose a mix of stocks, bonds, and cash based on a future retirement date of the investor.
The Target Date Fund will gradually get more conservative as you age.
You can buy a target date fund with the year that is closest to your retirement date, and the fund will gradually get more conservative as you age. For example, if you’re 35 and want to retire at 65, you can choose a 2052 target date fund. These funds are designed to be diversified over time so that they invest in both stocks and bonds (or other investments).
As you get closer to retirement age, the portfolio will shift to include more bonds and less stock. This means that it becomes “safer”—but also that it won’t likely earn as much money as an aggressive growth portfolio would have.
With a target date fund, you don’t have to keep track of any numbers or asset classes and rebalance on a regular basis.
With a target date fund, you don’t have to keep track of any numbers or asset classes and rebalance on a regular basis. The fund will automatically adjust its allocation to stocks and bonds over time as the investor gets closer to retirement age. This may be perfect for people who are not interested in managing their investments but do want to invest for growth within a predetermined range.
Are There Downsides to Target Date Funds?
Fees and Costs
Target Date Funds can be expensive when it comes to management fees when compared to other funds that can be used in an asset allocation strategy. These management fees will impact the funds overall return.
As Investopedia points out: “Target-date funds, however, often come at a higher cost than other passively-managed funds. You must pay a fee to have a fund that automatically adjusts on your behalf. The average fund has an expense ratio of 0.51%.
Set it and Forget it
While the idea of “set it and forget it” may be appealing since it sounds easy, it is probably not the best strategy as you get older and retirement becomes closer to reality. Since target date retirement funds adjust their weightings based on your retirement age, the reality is that a strategy that moves towards a more conservative approach might not make sense for you. Retirees will often spend 15-30+ years in retirement resulting in lost return opportunity because their strategy was based on their retirement date and not their life expectancy.
The Prudence of a Financial Plan and Investment Strategy
As you enter your 50’s, retirement is no longer something that appears way in the future–it is a reality that requires a plan and strategy. The best approach is to work with a trusted financial advisor that can create a financial plan that includes an investment strategy that is consistent with your goals and risk tolerance. This will help you to understand how much you need to save and what type of investments may be best suited for your circumstances. A financial plan and investment strategy is an important part of retirement planning because it can help you to understand how much money you will need to save in order to maintain your standard of living during retirement. It also helps to quantify the amount of money that will be available through Social Security benefits, pension plans (if available), and personal savings accounts.
We hope this article has helped you understand how target date funds work and what you can do to prepare and plan for retirement. If you’re new to investing, target date retirement funds might be a great way to get started. However, there is a more prudent approach to plan and prepare for retirement. By getting our help you can implement a financial plan coupled with an investment strategy that focuses on risk, diversification and a detailed spending and savings plan. Even if you are taking advantage of your company’s retirement plan offering, it might be prudent to get our advice to create a more diversified portfolio without the need to invest in a target date fund.
If you have any questions on target date funds or your retirement accounts, give us a call.
Have a great weekend!
Source: Ballentine Capital Advisors
Golf Tip of the Week
Bunker Shot “Ball Below Feet”
A difficult shot even for the pros
After hitting your tee shot on a short par-3, you discover that your ball has not only landed in the greenside bunker but is well below your feet. There’s no mistaking it; this is a difficult shot even for the pros.
With a few adjustments to your setup, even a high handicapper can execute this shot with ease.
- Lower your center of gravity to help reach down to the ball.
- Open the clubface just slightly, unlike for a normal bunker shot. This will help to dig down in order to get the ball out.
- Play the ball just forward of center. Too far forward, and you will likely blade the shot.
- Pick the club up quickly in the backswing, and abbreviate the follow-through to maintain your balance.
Incorporate these into your bunker play next practice session, and you will hit this shot with confidence.
Tip adapted from golftipsmag.comi
Recipe of the Week
Orange And Rosemary Gin ‘N’ Tonic
- 1 cup (250ml) orange juice
- 1/4 tsp ground cinnamon
- 2 rosemary sprigs
- 2/3 cup (160ml) gin
- 1 orange, thinly sliced
- Ice cubes, to serve
- 1 1/2 cups (375ml) chilled tonic water
- Place the orange juice, cinnamon and rosemary in a small saucepan over high heat. Bring to the boil. Cook for 2 mins or until the orange juice thickens slightly. Strain through a fine sieve into a jug. Discard solids. Set aside for 10 mins to cool slightly.
- Divide the orange mixture, gin and orange slices among serving glasses. Top with ice cubes and tonic water.
Recipe adapted from taste.com.auii
Health Tip of the Week
Addressing Neck and Back Pain When You’re Working from Home
Since the coronavirus pandemic closed many offices in 2020, working from home has become part of the new normal for some. Ergonomics — the science of making your work environment safe, comfortable and efficient — is not always the rule in off-site environments. If your work-at-home setup is causing pain in your neck or back, here are some tips to help you stay productive and pain free while you work from home.
Your home office can be hard on your neck and back
Working from home has benefits: There’s no commute and a relaxed dress code. You can pet the dog and keep your workspace as warm or cool as you choose.
But there are disadvantages, too: Doing your work slouched on the sofa instead of sitting at a desk in an ergonomic chair can leave you with back and neck pain. There could be multiple factors making your home workstation less than ideal for your health, such as:
- Firmness and type of your chair and presence of lumbar support
- Height of your chair in relation to your desk
- Position of your computer and monitors on your desk
- How often you take breaks from sitting
These and other factors can lead to back and neck pain as you work from home.
How to Prevent or Reduce Back or Neck Pain When Working from Home
Give your back a break: Keep moving
Even with an ergonomic office arrangement, working in one position without breaks is a major cause of back and neck pain. This is especially a problem among those who are no longer in the cubicle.
Try to get up every 30 minutes, even if it’s just to stretch and get out of that head-forward position many people are working in as they’ve been working on documents and sitting through Zoom meetings.
Even if it breaks your train of thought, a trip to the kitchen for a coffee or water refill or a quick walk around the yard can help. Staying active can make a huge difference.
Consider a Standing Desk
Therapists often advise patients to change positions every 30 minutes to one hour when they’re working, but since this can be difficult in work environments where people tend to not want to break from their level of engagement in a particular task, the standing desk is an ideal compromise.
Choosing a Standing Desk
Consider your specific needs, including your space and budget, which are both important. If you’re not sold on a standing desk, you can consider a standing desk converter that’s semipermanent and can work with your existing workspace.
Other considerations when you’re choosing a standing desk option:
- Ease of installation. Read customer reviews, since what seems simple is not always the case.
- Height. How “tall” do you need to go? Height adjustments aren’t universal, so check the range of any standing desk accessory to make sure it works with your needs.
- Electric vs. manual. Manually adjusting types may be easier on your budget.
- Adaptability and accessories. Think about whether extras such as wheels, additional shelves or left/right orientation are important to you.
Using Your Standing Desk
If you use a standing desk for part of your workday, here are a few pointers.
A standing desk arrangement should follow all the other ergonomic principles, such as keeping your arms bent at a 90-degree angle. And you should still try to change your position every 30 minutes to one hour.
As you are standing at the desk, shifting your weight from one foot to another is OK. However, the caveat is to engage our muscles when doing so — particularly the glutes. Too often we rely on passive tissues to support us throughout the day versus engaging our muscles to keep us upright against gravity.
Invest in an Ergonomic Chair
A bed, armchair or sofa is great for relaxing, but may not be ideal for spending hours hunched over your computer. Setting up a workspace with a table or desk can put you in a better position for your workday. For the times you are in front of the screen, investing in a good chair can support your posture and help you avoid a cranky back.
You want adjustable arm rests that move forward and back, not just up and down. When you’re sitting in the chair, you want your elbows at about a 90-degree angle so you are not reaching.
Lumbar back support is important. The chair should have an adjustment to accommodate the lower back, and should be at a height that allows your feet to rest on the floor. If your legs are not reaching the floor, putting something under your feet can help.
Think beyond the back
Vision. Some back and neck strain may start with your vision.
An eye exam might be one of the visits you’ve canceled or postponed because of the COVID pandemic. But working at home with laptops and smaller screens causes squinting and straining, putting stress on the neck and back as you try to see. Enlarging the text on your screens can be a simple first step.
Core muscles support your back and neck. A physical therapist can help you reengage muscles that are shut off when you’re in one position for an extended time. Working on deep abdominal and glute muscles can help support your spine and prevent strain.
Feet. For those who work at a standing desk, comfortable, supportive shoes are essential, since the stress of standing and walking will affect your entire spine.
Head. A more comfortable workday at home starts with a good night’s rest. If your pillow is too high or too low, it can put strain on your neck when you sleep, resulting in stiffness in your neck and shoulders and setting the stage for a painful day of working at home. Slowly shrugging your shoulders or applying heat can ease occasional discomfort, but you might need a new pillow if you keep waking up sore.
Although pillows have become very specialized (with price tags to match), any pillow that helps you sleep soundly and awaken well rested and pain-free is the right one for you.
Mindful Practices to Address Back and Neck Pain
How we think about the pain we’re experiencing matters — a lot. When we’re stressed, our ability to deal with our aches and pains goes down; even trivial problems can become very difficult to deal with. We tend to dwell on the negativity around our physical discomfort and focus on things we can’t do rather than all the amazing things we can.
If you are dealing with stress, practicing mindfulness could help. Closing your eyes and thinking about a relaxing place, such as your favorite spot on the beach, may help deemphasize thoughts about aches and pains.
Pursed-lip breathing is another technique to help you feel calmer and more centered. Take slow breaths in through your nose, and then exhale gently through your mouth as if you’re blowing out a candle. A few repetitions can deescalate the thoughts about pain and even lessen its impact.
Tip adapted from hopkinsmedicine.orgiii
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This material is prepared by Ballentine Capital Advisors for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation or any particular security, strategy, or investment product.
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