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Target-date funds are a way for investors to prepare for retirement without having to do the heavy lifting of managing their investments themselves. Pick your retirement year and then add money to this one fund and it automatically adjusts your investments behind the scenes to help you safely reach retirement, making them one of the best long-term investments.
The best target-date funds offer a lot of convenience, high returns and low fees, and the best target-date funds below include funds selected by retirement year.
Fund companies segment target-date funds in five-year increments, suggesting that investors pick a fund that’s close to their year of retirement. But investors who want more growth and potentially a higher account balance can go with a later year, keeping their funds invested longer in potentially higher-returning stocks.
Best 2055 target-date funds
| Fund (ticker) | Expense ratio | 5-year annual return |
|---|---|---|
| Mutual of America Clear Passage 2055 Fund (MUROX) | 0.47% | 13% |
| BlackRock LifePath Index 2055 (LIVAX) | 0.39% | 12.2% |
| Nuveen Lifecycle Index 2055 Premier (TTIPX) | 0.25% | 11.8% |
Best 2050 target-date funds
| Fund (ticker) | Expense ratio | 5-year annual return |
|---|---|---|
| Mutual of America Clear Passage 2050 Fund (MURNX) | 0.46% | 12.8% |
| Nuveen Lifecycle Index 2050 Premier (TLLPX) | 0.25% | 11.7% |
| Vanguard Target Retirement 2050 Fund (VFIFX) | 0.08% | 11.6% |
Best 2045 target-date funds
| Fund (ticker) | Expense ratio | 5-year annual return |
|---|---|---|
| Mutual of America Clear Passage 2045 Fund (MURMX) | 0.46% | 12.5% |
| American Funds 2045 Target Date Retirement Fund (FBHTX) | 0.45% | 11.5% |
| Fidelity Freedom Blend 2045 (FHAQX) | 0.47% | 11.5% |
Best 2040 target-date funds
| Fund (ticker) | Expense ratio | 5-year annual return |
|---|---|---|
| Mutual of America Clear Passage 2040 Fund (MURLX) | 0.47% | 12% |
| American Funds 2040 Target Date Retirement Fund (FBGTX) | 0.44% | 11.2% |
| Fidelity Freedom Blend 2040 (FHARX) | 0.47% | 11.1% |
Best 2035 target-date funds
| Fund (ticker) | Expense ratio | 5-year annual return |
|---|---|---|
| MoA Clear Passage 2035 Fund (MURJX) | 0.50% | 10.6% |
| American Funds 2035 Target Date Retirement Fund (FBFTX) | 0.42% | 9.9% |
| Fidelity Freedom Blend 2035 (FHASX) | 0.47% | 9.4% |
Best 2030 target-date funds
| Fund (ticker) | Expense ratio | 5-year annual return |
|---|---|---|
| American Funds 2030 Target Date Retirement Fund (FBETX) | 0.42% | 8.4% |
| Schwab Target 2030 Index (SWYEX) | 0.08% | 8.0% |
| Vanguard Target Retirement 2030 Fund (VTHRX) | 0.08% | 8% |
What are target-date funds and how do they work?
A target-date fund is a mutual fund or exchange-traded fund (ETF) that gradually changes your investments over time as the owner approaches the retirement, or target, date. It moves money from higher-risk, higher-return stocks to lower-risk, lower-return bonds. Investors pick the date they want to begin accessing the money, and the fund does the periodic rebalancing.
Target-date funds can be an attractive solution for investors who don’t want to do the work of managing a retirement portfolio themselves, and they’re popular in 401(k) plans. Pick the date and then add money to just this one fund, and the fund will dial down your risk exposure so that you land at retirement with the right asset allocation and you’ll have money when you need it.
As you can see in the lists above, the longer-dated funds have higher returns. That’s due largely to the fact that the funds are re-allocating money from higher-return stocks to lower-return bonds over time. So don’t pick a target-date fund because it offers a higher return, since that annual return is likely to go down in future years as the fund moves increasingly to bonds for safety.
Instead, select a fund based on the date you’ll need the funds. In fact, some financial advisors suggest that investors buy a fund that’s five or 10 years later than when they actually want to access their money. The reason? Those later-dated funds will offer a better potential for higher growth, giving retirees more assets over time and reducing the risk that they outlive their assets.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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