FUNDS: What you need to know about target date funds

A number of companies offer target date retirement funds, sometimes referred to as “target date funds” or “lifecycle funds.
Worldwide, target date mutual funds have become progressively popular and at the end of 2017, the Investment Company Institute (ICI) projected a total of $1.1 trillion was invested in these funds worldwide.
Target date funds are designed to offer a suitable way to invest for a person expecting to retire around a particular date. Target-date funds are also designed to help manage investment risks.
A target date fund pursues a long-term investment strategy, using a mix of asset classes (or asset allocation) such as stocks, bonds, and other investment. Over time, the mix gradually shifts according to the fund’s investment strategy.
Some of the advantages of TDF are, it allows diversification across asset classes, your portfolio is professionally managed offering a hassle free investment, and your portfolio is automatically adjusted for changing risk profile.
However, one downside to target-date funds is the lack of customization. Target-date funds do not take into consideration an individual’s life changes that may affect their capacity to save or the impact that life events may have on an individual’s retirement plans.
Another drawback is high expense ratios. In some target-date funds, there is a fee for the underlying mutual funds and another layer of fees for managing the funds.
Also, Like all investments, target-date funds can lose money if the stocks and bonds owned by the fund drop in value. Though funds with identical target dates may look the same, they may have very diverse investment strategies and asset allocations that can affect how risky they are and what they are worth, at any given point in time, including when and after one retires.
However, this fund was introduced in Nigeria for the first time by Codros Capital. They introduced two target date mutual fund, which are 2023 and 2028 with the aim of pursuing a long-term investment strategy to manage the asset allocation (mix of asset classes) of the fund, to become more conservative as the target dates (2023 & 2028) approach. This simply means that Target 2023 or 2028 that are designed for individuals who intend to retire in or near the year.
If one decides to invest in a target-date fund, it is imperative to do some research on the investment company, expense ratios and how the target-date fund is rebalanced throughout the years.
If you keep an eye on your investments, are realistic about your future and plan on having a few diverse income streams in retirement, a target-date fund may be an investment you want to consider.

Oghogho Edosomwan