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Retirement Planning – Growth Stage of Retirement

Q : I’m 42 and in growth stage of retirement assets. I have about $300,000 in various mutual funds all in a Roth IRA. Should I just put it all in a life cycle fund like the Vanguard 2040 and not think about it until I retire?

 

A : Thanks for reaching out with your question.

 

There are many positive attributes to those life cycle funds with the primary one being the auto-adjustment that the allocations make throughout the years. We would hesitate to recommend you not think about it until retirement however. One drawback to the life cycle funds is “style drift”. What I mean by that is although it says 2040 or 2015, etc. the asset allocation is not always as aggressive or conservative as one wants. We recently had a very conservative client come in who was beginning retirement. She had a similar fund that was target 2015 (different fund provider though) and assumed it was as conservative as she was. When we peeled back the onion, we found that her assets were actually 60% stocks and 40% bonds.

 

The main point is that asset allocation and re-balancing are the primary factors in long-term investment success. There are studies upon studies about this. So, if you’re in the growth stage of retirement assets, you’d want a growth-focused allocation but it would be equally important to periodically (at least annually if not semi-annually) re-balance the portfolio to ensure the allocation is in-line.

 

I hope this helps and please let me know if you have any follow up questions or would like to discuss further.


 

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