This common investing mistake could 'significantly diminish' the value of your savings. (via CNBCMakeIt)
. They are designed to simplify the investing process: An investor can select the single fund that aligns with their risk tolerance or expected retirement year, and the work of picking stocks and bonds is done for them.
"Less efficient portfolios means lower realized returns," David Blanchett, head of retirement research for Morningstar Investment Management and the author of the report, tellsIndividuals may combine investments because they don't understand what a target-date fund actually is. While they think adding other stocks or funds will help them "out perform" the market, they are actually diluting the value of a target-date fund.
Investors who mix their target-date funds with other investments tend to be more aggressive, the report says. But rather than adding stock funds to their investment mix, they'd be better off selecting a more aggressive target-date fund altogether. If they plan to retire in 2045 and are invested in the target-date fund that corresponds with that year, it'd be better to opt for the 2050 or 2060 fund, which will have a higher risk level.
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