Target-Date Retirement Funds: A DIY Guide

For decades, investors have relied on target-date retirement funds for their simplicity and hands-off approach. However, it's possible to create your own custom target-date fund, offering greater control and potentially lower fees.

Step 1: Research and Select a Target Date

* Choose the year you plan to retire and research target-date fund families that offer a fund with that year.
* Examples include Fidelity, T. Rowe Price, and Vanguard.

Step 2: Analyze Fund Holdings

* Identify the percentage of stocks, bonds, and cash in the target-date fund you're considering.
* Determine which mutual funds the target-date fund invests in.

Step 3: Seek Low Expenses

* Target-date funds typically have higher fees than the underlying funds.
* Index target-date funds offer lower expenses than actively managed funds.
* Compare the expense ratios of different funds.

Step 4: Allocate Your Funds

* Open an IRA account.
* Divide your investment among the same mutual funds held by the target-date fund, using their stock/bond/cash percentages as a guide.
* Adjust the weighting of stocks and bonds to suit your risk tolerance.

Step 5: Maintain and Rebalance Regularly

* Once a year, check the fund holdings and adjust your allocations to maintain the desired asset distribution.
* Rebalance whenever your portfolio deviates significantly from your original allocation.

Benefits of a DIY Target-Date Fund

* Greater control over investments
* Lower expenses
* Flexibility to adjust allocations to match risk tolerance
* Beginner-friendly approach to retirement planning

Cautions

* Requires some research and understanding of investment principles.
* May involve higher fees than a single index fund.
* Regular monitoring and rebalancing are necessary.