Jonathan Shelon is the portfolio manager for Fidelity's family of target-date funds, known as Freedom Funds. The 2050 fund is 90 percent invested in equities, he notes, and the percentage decreases in each successive five-year period. The 2010 fund, for example, is 50 percent invested in equities. Shelon says that all of the funds are designed to roll over into an income fund 15 years after the target date is reached and that the income fund holds only 20 percent of its assets in equities. Even including the bear market, he notes, Fidelity's 2010 fund has averaged 5 percent annual gains in its 12-year history, and that's precisely what it was designed to do.
[Also see 4 Myths About Target-Date Funds.]
Implement your shifts in stages. As with portfolio rebalancing, any major change in your holdings—in mutual funds as well as individual stocks—should be made in stages. By spacing out your trades, you'll guard against the risk that you would be buying or selling equities at a bad point in a market cycle. And if you're not comfortable with the equity weighting in the target-date fund aligned with your retirement plans, you can easily shift into another target-date fund that better matches your personal risk profile.
Act. "The average 401(k) investor is not as engaged as we would like them to be," says Michael Doshier, Fidelity's vice president for workplace investing. He notes that only 1 in 7 Fidelity plan participants rebalances a portfolio in any given year. The bottom line: Many people are more likely to tune up their cars than their retirement portfolios. Don't be one of them.