By Craig Eissler, CFP®, CIMA®, AIF®, PPC®, Wealth Advisor at Halbert Hargrove
A Recipe for Retirement Planning: Why Experience and Knowledge Matter
I enjoy cooking. While I may not be the best chef, I enjoy the process and the challenge of finding the right recipe for my tastes and executing the instructions so that the result is as close to the expectation as possible. Yet all too often, mistakes are made along the way. The dish may not always turn out how I had hoped – even while the process is still enjoyable. Don’t ask me about the time I attempted to sous vide a beef tenderloin!
Why am I bringing up my experience as an amateur chef? Because as an investment professional, I see myriad ways in which experience and knowledge – or the lack of it – can impact results. Having a professional manage your investments leading into and through your retirement can help lead to better outcomes. If I were to have a situation where my quality of life in retirement were dependent on how well I execute a recipe for only one meal – why wouldn’t I want to hire a professional to do the cooking? So much is dependent on the outcome!
Target Date Funds Cater to Your Specific Retirement Saving Needs
Investing in an employer-sponsored retirement plan involves critical decisions. Many 401k plans offer participants a vast array – often too vast – of investment options to choose from in investing their retirement funds. Participants can pick and choose investments in any arrangement they believe might be best, even when they lack experience in investing.
Fortunately, most 401k plans these days offer target date funds as investment options. Company-sponsored plans often have this option designated as the default investment for those who fail to make a selection. Target date funds, sometimes called life-cycle funds or age-based funds, are a type of mutual fund designed to simplify retirement investing. They are structured to automatically adjust the asset mix of investment vehicles according to a selected time frame, typically the year you plan to retire.
Just as a chef adjusts recipes to suit your taste, target date funds are designed to adjust the mix of stocks, bonds, and other assets as you approach retirement. They offer you a hands-off approach to investing. Once you select a fund, the fund managers handle the asset allocation adjustments over time. When you invest in a target-date fund as a younger investor it starts with a higher allocation to stocks. This is because stocks generally offer higher growth potential, which is beneficial when you have many years until retirement. As you approach the target date (the year you plan to retire), the fund gradually shifts its allocation from stocks to more conservative investments like bonds and cash. This is like having a financial chef who helps prepare a balanced investment portfolio tailored to your retirement date.
A personal chef brings expertise and convenience to your dining experience. It takes a lot of work to adequately shop for, prepare and cook a high-quality meal – just like it takes a lot of time to research, select, implement and monitor your retirement assets for a high-quality retirement. You’re benefiting from the knowledge and experience of investment professionals and saving time on managing investments.
Target Date Funds Are Also an Affordable Option
There is one major difference in this analogy: cost. Hiring a personal chef is a luxury that most people can’t afford. In contrast, the costs of index-based target date funds can be as cheap as the index funds that comprise them. It’s like being able to hire a personal chef for a fraction of the cost!
Whether you’re looking to simplify your retirement investing with target date funds or improve your dining experience with a personal chef, both options offer convenience and professional management with the potential for quality outcomes. They allow you to focus on what matters most to you, knowing that professionals are handling the details. When considering your retirement, it’s important to understand the role of professionals. Here at HH, we’re happy to assist you with any decisions you’re facing about choosing appropriate investments for your 401k or other retirement assets.
Disclosure
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.
The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without previous notice. There is no guarantee any forward-looking statement will come to pass. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. This material should not be relied upon by you in evaluating the merits of investing in any securities or products mentioned herein. In addition, the Investor should make an independent assessment of the legal, regulatory, tax, credit, and accounting and determine, together with their own professional advisers if any of the investments mentioned herein are suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield may not be a reliable guide to future performance. Any reference to a market index is included for illustrative purposes only as it is not possible to directly invest in an index.
