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Schulfer & Associates, LLC

Target Date Funds, Rebalancing and Active Management

Target Date Funds, Rebalancing and Active Management

 

By LouAnn Schulfer,  AWMA®, AIF®
Accredited Wealth Management Advisor®

Accredited Investment Fiduciary

 

When we meet with new clients and analyze their financial accounts, a significant asset for many who are still working is their 401(k), 403(b) or other employer sponsored retirement account.  Most have a great handle of understanding their contributions and employer matching funds.  Often times, there is confusion about how the accounts are managed. 

 

Target date funds have become popular.   The idea is to choose the fund with the year that you plan to retire, named something like “fund2035” and the allocation goes on auto-pilot, moving to more conservative options as the named year approaches. 

 

Participants may opt for a “rebalancing” feature within their chosen fund line up.  If for example, you’d chosen 70% stocks and 30% bonds and the stocks outperformed, that 70% weighting would increase, possibly to something like 80%.  Rebalancing sells off the overweight and reinvests in the underweight positions, rebalancing back to the intended 70/30 ratio. 

 

Active management is completely different from either of those.  Generally speaking, an actively managed portfolio is based upon ongoing research.  The portfolio manager positions to sectors of the market which she or he believes will fare well in the current economy.  Since our economy ebbs and flows, it makes sense that what is believed to be a good investment today may be different than what performed well previously. 

 

Often confused, there is a significant difference between target date funds, rebalancing and active management.

 

 

LouAnn Schulfer is co-owner of Schulfer & Associates, LLC Wealth Management and can be reached at (715) 343-9600 or louann.schulfer@lpl.comwww.SchulferAndAssociates.com

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor.  Member FINRA/SIPC