Do's and Don'ts of Life-Cycle Funds

Sunday, August 19, 2007

Here are some issues to consider when deciding whether to invest in a life-cycle, or target-date, fund:

DON'T decide based on past performance. That's true for most mutual funds but even more the case for these funds that haven't been around for long. Funds that hold more stock investments than others are likely to have had the best recent performance but may not be the best for the long run.

DO look at fees. They have a major impact on returns. In 2006, Consumer Reports found big differences in annual expense ratios.

DO understand how funds divide your money between stocks and bonds and how that allocation changes over time.

DO understand that the funds are an attempt to move more investors closer to having what they need in retirement but are not a guarantee of a fully funded retirement.

© 2007 The Washington Post Company