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Bankrate's 2008 Retirement Guide
Finding the funds
Sometimes, finding that extra bit of income can turn a retirement nightmare towards a happy ending.
Finding the funds
Investing in your retirement
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Target-date funds
So-called target-date funds are popular relative newcomers and are designed to take the stress out of investing. They are designed to keep investors on track to hit retirement goals by putting more asset allocation decisions into the hands of the managers who run them.

Like other mutual funds, target-date funds invest in an array of stocks, bonds and cash. Many are funds of funds -- that is, they are composed of several other funds. As time passes, target-date funds automatically rebalance their holdings to become more conservative.

But convenience comes with some warning. These funds' one-size-fits-all approach is misleading since funds can differ greatly, depending on who runs them, says Paul Mladjenovic, a Certified Financial Planner and author of "Stock Investing for Dummies."

"The mix will depend on the fund administrators. All the firms that have plans have different presumptions in place, so some are more growth-oriented, some less so. When you choose a target fund, look at the categories that make up the mix for that particular fund," Mladjenovic says.

You can investigate target-date funds at www.morningstar.com, where you can compare the underlying assets of the funds as well as performance history and expenses. Here again, personal advice from a financial adviser may help.

Index funds and managed funds
When it comes to picking a mutual fund, it's easy to feel overwhelmed. You've got thousands of different choices.

But you can make quick work of organizing your options by dividing the fund universe into two basic categories: index funds and actively managed funds.

Index funds are designed to replicate the performance of a particular market index, such as the Dow Jones industrial average or the Standard & Poor's 500.

A quick refresher course
The Dow is made up of 30 leading domestic companies such as Alcoa, General Motors and Microsoft, and its overall performance is used as a bellwether of the overall economy.
The 500 large-cap stocks in the S&P 500 represent leading actively traded U.S. companies. Many mutual fund managers pit their performance against that of the S&P 500 index.

Index funds are pretty straightforward because their holdings mirror that of an index. As Mladjenovic sums it up: "Index funds can be run by one person and a computer."

Actively managed funds are an entirely different story. With these, a mutual fund manager or team of managers buys and sells a variety of holdings in an attempt to beat the fund's comparable index. Therefore, portfolio turnover is generally higher, the funds are less tax-efficient and they require more hands-on management.

-- Posted: Nov. 10, 2008
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