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Five Benefits of Target Date Mutual Funds

Target date mutual funds are a great investment option for financial beginners who want to dip their toes into the world of financial investing. They work by setting a pre-determined retirement date for the investor, and then they automatically adjust and invest to fit each investor's goals. They're an extremely flexible and easy to understand investment option, and many people who are just starting out in the workplace choose this option because of their simple and low-maintenance nature. Here are five of the top benefits of investing in target date mutual funds.

Simplified Process

Target date funds seek to eliminate some of the stress and complexity of long-term investing. By setting a specific date in the future, they take a lot of hard work and research out of the hands of the investors and put it in the hands of the mutual fund manager instead. For young people just getting started in investing, this can be a welcome relief. Many first-time investors have neither the time nor the knowledge to properly learn how to manage their investments, so making the process more automated and putting it in the hands of experienced professionals can help immensely.

Rebalances Portfolio

One of the best aspects of target date funds, and the one that attracts a lot of first-time investors, is their ability to adjust and rebalance investments as time goes on. For instance, if you invest in a target date fund when you're young, the mutual fund will be very aggressive. However, as you get older, the fund will rebalance so your money is shifted to more conservative and safer investments. This guarantees that your money will grow quickly at the beginning and level off over time, ultimately creating a nice nest egg for retirement.

Flexible Options

Because all of the investments in these funds are based on a target date, their very nature is incredibly flexible. Whether you want to start one when you're 22 or 52, you can customize and create your own mutual fund savings plan. However, the shorter-term you set, the more aggressive your fund is likely to be. By setting a date farther out in the future, you're allowing the fund to adjust itself over time and shift into safer investments. Still, for people who got into the investing game late and are looking for a way to make up ground, target date funds can be one investing choice to consider.

Right Mix of Investments

Target date funds usually consist of a healthy mixture of different kinds of investments, from stocks and bonds to equities and treasury notes. Many beginning investors don't even know where to start saving their money, so a target date mutual fund can provide them not only with a good base to start but also a tutorial in how to invest. Because of their long-term nature, the investments are generally spread out across the markets in order to absorb any potential loss that the account may incur. This is a great way to see how money can be invested and which markets work the best for an individual investor's needs.

Comfortable for Investors

Perhaps the most valuable part of target date funds is the sense of comfort and peace of mind that they give to investors. Putting your savings into an account or form of investment that you don't understand can be stressful, particularly if you don't know how to monitor the markets. However, target date funds take a lot of the worry and stress out of the equation. This can help you settle down, think more rationally, and make smarter investments. Because of the long term nature of the investment and its management, you'll be less likely to make rash investment decisions, and that's a good thing.

Target date funds make an excellent investment for beginners because of their flexibility, management and bevy of options. No matter whether you're an aggressive investor or a conservative one, you can find a targeted date fund that's suitable for your financial needs. As you get older and obtain more financial experience, you can consider investing in more detailed stocks and bonds, but for starters, you can do a lot worse than a target date mutual fund.

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