Target Retirement Funds – function on the principle that you should invest in equity, while you are young, and move towards debt, as you get older.
Since such funds are – fund of funds, when you buy a Target Retirement Fund, you are effectively buying the funds that your Target Investment Fund invests in.
But, more than that; you are buying into the idea that your savings should be invested in a certain ratio of debt and equity.
If you buy that idea, and have decided that a particular fund offers you a good mix, then you have to invest all your savings with that fund.
If you don’t invest all your savings with that fund, then you skew your ratio of debt and equity from the one you believed: best for you.
And, if you skew that ratio, then you really don’t buy into the idea that a particular ratio is good for you.
The only exception to this is – when you knowingly buy a Target Retirement Fund that has a ratio, which you are not satisfied with. For example a fund that invests 80% in equity and 20% in debt, when you would like only 70% of your savings in equity. To correct that ratio – you need to buy additional debt funds, and balance your portfolio.
The question is – if you have to manage your asset allocation, after buying a Target Retirement Fund, does it really make sense to buy a fund – whose purpose is providing the right asset allocation, in the first place?
How hard is it to buy the funds that your – Target Retirement Fund – will own on your behalf, and then keep investing in those funds directly every year? It can’t be much more difficult than buying additional funds to balance your asset allocation.
If you have invested in a Target Retirement Fund, and have more money invested in other instruments, you might want to re-think that decision, and consider owning the funds that your Target Retirement fund owns on your behalf.