Greetings! I hope and trust that this finds you well and enjoying life.

To further our discussion about investing basics and your retirement this week let’s examine mutual funds. You can invest in all three major asset classes of cash, stocks and bonds through mutual funds. In this form of investment you pool your money with that of other investors. Each fund’s manager selects specific securities to buy based on a stated investment strategy.

Mutual funds offer two key benefits. Because most mutual funds own dozens or hundreds of securities, you achieve greater diversification than you would by buying a few individual securities on your own. Also, the fund manager’s expertise is part of what you pay for in buying mutual fund shares.

A mutual fund may invest in one of the three major asset classes, or combine them. For example, a balanced fund typically includes stocks and bonds. With an actively managed mutual fund, the fund manager buys and sells specific securities, trying to beat a benchmark index such as the S&P 500. A passively managed or index fund tries to match the return of a specific index by holding only the securities included in that index.

Some mutual funds attempt to tailor each fund’s asset allocation not only to your risk tolerance, but to how soon you expect to use that money. These types of funds known as life cycle or target-date funds, tend to set and adjust a given asset allocation based on a given date in the future while shifting the mix of investments gradually over time to increase the focus on capital preservation as the target date approaches.

Life cycle or target date funds tend to be available in series and each fund in the series targets a different time horizon. The “target date” is the approximate date when an investor expects to begin withdrawing money from the fund. For example, someone investing for retirement in a fund with a target date of 2030 typically expects to retire in 2030 and begin tapping the fund for income.

With target date funds, the principal value is not guaranteed at any time, including at the target date. There is no guarantee that a target date fund will meet its stated objectives. It is important to note that no two target date funds with the same target date are alike. Typically, they won’t have the same asset allocation, investment holdings, turnover rate or glide path. It is important for an investor to look beyond the target date to determine if a particular target date fund is an appropriate investment.

If you have questions about the above or any questions related to your retirement planning don’t hesitate to call.

Best regards,

Jeff Christian CFP, CRPC

A dream is just a dream. A goal is a dream with a plan and a deadline.

Harvey Mackay

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