Retirement 2040: How to Pick Mutual Funds that Align with Your Retirement Horizons

Saving for retirement is a central pillar of good financial hygiene. Mutual funds are generally considered safe and secure investment vehicles to help you enjoy your golden years. So, how should you go about picking mutual funds that will align with your specific retirement horizon?

There are a number of mutual funds that are established with a specific date in mind for when their beneficiaries will be looking to begin accessing their funds. Each fund has its own unique focus, track record, and other distinct details.

Exploring a few examples can help demonstrate the way different funds operate, and the particular offerings of each one. Looking into the data can help you understand both how these funds function, and which one might fit best with your preferences.

What is a Mutual Fund?

First, let us start with understanding how a mutual fund works.

A mutual fund is a type of investment in which investor monies are pooled together to buy an assortment of assets. The portfolio is divvied up into individual shares, which are available for purchase.

Using the TipRanks analyses pages, you can view the historic performance and current assets of a slew of mutual funds. Simply type in the mutual funds stock ticker into our search box to view different sets of data relating to its past performance and future prospects.

For instance, looking at the Vanguard Target Retirement 2040 Fund’s (NASDAQ:VFORX) analysis page, we can tell that this fund has over $72 billion in assets, has risen 11.5% over the past 12 months, and has an expense ratio of 0.08%.

You can also use the TipRanks’ tools to view the assets the fund is invested in, and learn how various analysts are ranking the fund.

A 2040 Retirement Horizon

Different mutual funds are built with distinct purposes. There are funds that invest in certain sectors, geographies, or companies at specific stages in their lifestyle, with each of these approaches corresponding to varying degrees of risk. There are more aggressive funds built to achieve larger returns, while there are others that take a more conservative approach.

The timing of your future usage of your investments is intrinsically related to the amount of risk you should be taking on. For instance, if you are looking to retire in 30 years, you can afford to be more aggressive than if you are inching closer to retirement. You have plenty of time to recoup losses in the early going, and thus can absorb more risk when making your investment decisions.

On the other, if you are looking to retire in the coming five years, you would be better off adhering to a more conservative strategy. You have less time to wait for the market to right itself, in addition to a diminishing number of years when you will earn a salaried income.

It follows that mutual funds that are designed for a 2040 retirement will be on the aggressive side of the ledger, for now. However, the fund will gradually take on a more conservative approach as the clock winds down on the predefined investment horizon, when it will begin prioritizing wealth preservation and smaller gains over growth.

Searching for 2040

There are a wide variety of 2040-focused mutual funds offered by some of the largest providers on the market. Though they will each have their own particular portfolio of investments, they are united by their focus on delivering returns for those looking to retire in 2040.

Let us explore a few of these options:

Vanguard: With over $72 billion in assets, the Vanguard Target Retirement 2040 Fund (NASDAQ:VFORX) (described above) is one of the larger funds on the market. Its low expense ratio means that your costs of holding onto the asset will be on the lower side as well, making this option a popular one for investors looking to build a stable and secure retirement portfolio. As can be seen from its holdings, it is entirely invested in other Vanguard products:

American Funds: The American Funds 2040 Target Date Retirement Fd Cl C (NASDAQ:CCGTX) has over $32 billion assets along with an expense ratio of 1.44%.

It is also geared towards those looking to retire in 2040. Its assets are made up of stocks and bonds, which it has acquired through the 21 different holdings that it owns. The details of each, and what their respective portfolios are comprised of, can also be found on the individual TipRanks’ analysis pages.

Charles Schwab: The Schwab Target 2040 Fund (NASDAQ:SWERX) is a much smaller fund than the two previously discussed funds, with slightly less than $1 billion worth of assets. Like the others, it is also geared for those who are looking to retire in 2040 or thereabouts.

Its expense ratio sits between the Vanguard and American Funds offerings, at 0.50%. Unpackaging this a bit, the expense ratio is the annual fee that you will pay to own the mutual fund. The fee you will pay is calculated based on your overall holdings.

For instance, if you were to own $1,000 worth of the Schwab Target 2040 Fund, you would therefore pay $5 to the fund manager (correlating to 0.50% of $1,000). While this might not seem like a lot, it can add up as your holdings increase. Therefore, it is important to pay attention to this figure and make sure that you are comfortable with the fund’s fee structure.

MFS Investment Management: The MFS Lifetime Retirement Income Fund Class R4 (NASDAQ:MLLJX) is another fund that was designed for those looking to retire in the coming decade and a half.

Among the various pieces of data available on TipRanks, you can also search for the dividend yield that it offers its shareholders to understand how it compares to its peers. From the figure below, you can clearly see that the current dividend yield of 6.38% is sitting much higher than the industry average.

This is another factor that you can take into account when considering investing in a mutual fund for your retirement or other savings needs.

Conclusion: Finding the Right Retirement Investments

Mutual funds are a popular investment vehicle. By providing instant diversification and a broad base of assets, mutual funds offer a relatively safe way to grow your money.

Each mutual fund has its own organizing principles, with various focus areas, historical performances, expense ratios, and dividend payouts, among other differences.

Use TipRanks to dive into each of these potential investments and what distinguishes each. Taking the time to learn about their assets, liabilities, and a whole assortment of data will help you to make informed decisions when investing your money.

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