August Financial Planning Newsletter
month: dusting off those savings bonds & understanding target date retirement funds.
When was the last time you purchased a US Savings Bond? How about the last time you received one as a gift from a relative? Well, it is time to rummage through those desk drawers or safe deposit boxes and figure out if they are still earning interest.
The Department of the Treasury reports that there are more than $16 Billion worth of fully matured savings bonds out there that are no longer earning interest for their owners.
The Treasury has set up a website that will assist you when researching savings bonds:
The website will help you determine if the bonds are still earning interest (if you have the serial numbers). The website will also allow you to enter your Social Security number to search for any unreedemed savings bonds. It also will direct you to the proper forms if you are holding bonds for someone that is deceased.
For those that continue to hold and purchase Treasury bills, notes and savings bonds the Treasury also has a website that will allow you to manage your positions:
Do Target Retirement funds have guarantees?
Over the past few years just about every major fund company has come out with a "target date fund" to make investing easier for consumers. You are seeing these being added to many 401k plans, so just what are these target date funds and how do they work?
Think of the target date fund as a one stop shop for investing. The idea is that you put your money into this one fund and get instant exposure across a variety of the fund companies other mutual funds. It can be thought of as instant asset allocation. The good news is that for 401k participants this takes the guess work out of trying to do proper asset allocation. The bad news is that there are no guarantees. The funds are designed so that you pick a target date fund that corresponds to your anticipated retirement age and the allocation will slowly get more conservative as you approach that date. As many witnessed in the great market meltdown of the past year the allocations are very subjective with each fund company determining the mix of stock to bond ratio, even those target date funds for 2010 and 2015 took large hits for many consumers as the funds ended up being invested a bit more heavily in stocks than most would have liked.
The target date funds are a great way to put your 401k on autopilot, but like any investment you need to understand that they move with the market. Do your homework to determine if a particular target date fund matches your risk profile, or simply ask your advisor to make a recommendation based on the fund allocation.