You’re probably pretty good at what it is you do on your job or in your business. But that doesn’t mean that you are an expert when it comes to retirement planning. The reality is that most people are not-after all, retirement planning isnâ˜t what you do for a living. Retirement planning really is a financial specialty, and sometimes that’s just best turned over to the professionals who know it best.

But if you decide you want to turn it over to others to manage, how can you do that without spending a fortune on investment management fees?

One way to do that is with target date funds. Target date funds are based on your year of retirement, and customize the asset mix to match that date.

Target date funds build a portfolio based on your age

Let’s say that you are 30 years old, and you want to retire at 65. It’s 2013, so your retirement date will occur sometime during 2048. All you need to do is select a target date fund based on retirement in the year 2048. You can invest in the funds now, and the allocation within the fund will automatically adjust as you get closer to retirement.

You can be certain that the allocation between stocks and bonds fits your current age, at any age going forward. The portfolio will become progressively more conservative as you approach retirement age.

Diversification is done for you

One of the best advantages of target date funds that there is no need to buy stocks and bonds, and you never have to worry about diversifying between holdings. The job of diversification is done automatically as part of the fund. It’s almost as if you had a fund customized to your own needs, except that there may be thousands of other people invested in the same fund.

It’s sometimes said that target date funds are a mutual fund of mutual funds❠because each fund holds several other funds, based on growth and safety. But that arrangement removes the jobs of security selection and asset allocation from you, then properly divides them among the funds in the overall target date fund. All you need to do is put your retirement money into the fund, and the fund managers take it from there.

No need to change allocations as you get older

One of the biggest challenges for most amateur investors is changing allocations as they get older and circumstances change. You may never be entirely certain when the right time is or even to what degree it needs to be done. A target date fund will do that for you as time passes.

And no need to rebalance, it’s done automatically

Rebalancing is one of the most difficult tasks for an investor to handle. Rebalancing is the process of trying to maintain your allocation in the face of changing valuations. For example, you may decide you want to hold 70% of your assets in stocks but as the value of the stocks rise in a given year, you find the stock allocation now exceeds 80%. At what point do you rebalance and move the excess stock holdings into your fixed income positions?

With a target date fund you’ll never have to concern yourself with that, it will be done automatically. Rebalancing is perhaps the most mechanical aspect of investing, and is more easily done by a professionally managed mutual fund than by an individual. The fund manager will handle this within the fund portfolio, freeing you of the responsibility to sell some securities and buy others in order to keep your position property balance

The fees charged by target date funds are generally higher than what they are for most mutual funds. But for a person who is entirely uncomfortable handling their own retirement investing, the fees may be worth paying. You can invest your money in a target date fund, then forget about it and get on with what it is you do best.

Do you have any of your retirement money invested in target funds?

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Many investment professionals will tell anyone that they should start investing their money immediately. This advice does have some merit to it: compounding interest means the earlier your money is invested, the larger the growth will be in later years. Unfortunately, this advice really only works in the real world. After all, if you need to pull out your money because of medical emergencies or other real world problems, then all that interest will never materialize. Further, if you find yourself paying off high interest debts while you experience low interest gains, the money could actually be better used in a different place.

Before you start investing your money, you should already have a firm financial foundation to stand on. This is because once you invest your money, it needs to stay invested. Your money should stay at minimum in your investment for ten years, but ideally should stay until you absolutely need to withdraw it for retirement. If the money does not stay invested, then all those compounded gains that the investment brokers talked about might as well be imaginary.

The first thing you should look at is your emergency financial fund. This is critical, because this is what you will rely on if you lose your job, get injured, or any other one of a thousand scenarios that could leave you financially hurting. In the old days, it was said that you should have three months of household expenses saved. These days the economy isn’t that good. Today, many analysts say you should have anywhere from eight to twelve months of household expenses in your emergency fund. This is because, due to the economy, it’s possible to be out of work for a significantly longer amount of time than it used to be. When considering your financial future, the first thing you should be doing is saving your emergency fund.

The second thing you should look at is your debt picture. It makes absolutely no sense to have $10,000 invested at 6% a year when you’re paying 16% a year for $5,000 worth of credit debt. You need to pay off any debt that has a greater interest rate than your investments before you begin to invest-otherwise you are losing money in the long run. Good debt such as mortgages and low student loans can be forgiven from this equation, as they generally have a low interest rate and are meant to be paid off over a long period of time.

Finally, you should prepare yourself to take the investment plunge. By investing, you need to emotionally detach yourself from the money that you are intending to invest. You must be willing to not touch this money for at least a decade of time, so it needs to be money that will not be needed. You need to commit to the ups and downs of the market-because the market will go both up, and down. There have been many market crashes, but in general, the market always recovers. Those who panic and sell at the bottom often lose almost all of their initial investments, while those who stick it out are the ones that profit.

Investing is an important part of your overall financial picture, but it is only one component. In order to build yourself a firm and successful financial future, you must consider all aspects-emotional and practical-of your investments before committing. One great resource is ANZ Share trading.

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Spending power could be limited in retirement years because of poor tax management. Individuals could be paying as much as 25 percent on their long-term profits, without the right tax advice. Mutual Funds have a high turnover, which generates extremely high tax bills at the end of each year. When you buy a fund, you may also be buying embedded gains, which is a liability. You may also be responsible for taxes on capital gains that other people have made. Exchange traded funds are a better choice for tax handling then mutual funds.

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