Why Target-Date Funds Make Sense for Younger Investors

Investing on autopilot comes with a few bumps, including expenses and international risk.

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A specialty product known as risk-managed target-date funds provides investors some protection in a down market, but that can mean at least partially missing a bullish upturn. "For an investor with 35 years or so to go until retirement, I'm not sure that risk-managed target-date funds would be the best choice," says ING's Zemsky.

For younger investors, say in their 20s or early 30s, "their biggest asset really is their future potential earnings stream, which acts, in part, like a fixed-income investment, a future series of payments," adds Zemsky. "Considering this income portion of 'investing,' plus a target-date approach to the stock market, investors can take advantage of a higher proportion of equity exposure at a younger age. They have the time to potentially recover from down markets."

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