Pick The Right Target

Key tips for using target-date retirement funds.

- Kathy Kristof

SANDY FRANCIS IS LIVING PROOF that investing for retirement needn’t be complex. The co-owner of Colorado-based Veda Salon & Spa says set-it-and forget-it target-date funds are the cornerstone of his firm’s 401(k) plan. He and most of his 180 employees use these retirement accounts to put their planning on automatic pilot.

“They have an appropriate mix of investments, they’re automatically rebalanced, and they’re low cost,” Francis says. “If you choose that kind of fund, you don’t have to worry about anything.”

Over the past decade, target-date funds have taken the retirement-planning world by storm. These types of accounts hold a variety of investments in a mix that gradually becomes more conservative as participants age and get closer to their “target” year—presumably the start of retirement. Because they take the most vexing decisions out of your hands—like how much of your portfolio should be invested in stocks versus bonds, or international versus domestic assets—they can help you avoid costly mistakes, from panic-selling to return-chasing. “We humans are predictably irrational,” says Allan Roth, founder of Wealth Logic, a financial-planning firm based in Colorado Springs, and Veda’s retirement adviser. “We jump into investments after they’ve gone up, and get out of them after they’ve gone down. If we’re offered too many investment choices, we throw up our hands and keep our assets in cash.”