A set and forget portfolio is a simple, safe bet when it comes to investing.
But dont take forget too literally.
Weve written about theease of target date funds before.
They slowly invest more of your portfolio away from stocks and into bonds as time goes on.
Target date funds that move the asset allocation from stocks into bonds are exposing older investors to this risk.
Furthermore, the more money that is in bonds, the less diversified is the portfolio.
Because we have had low inflation for the last 30 years, in my opinion investors have gotten complacent.
But rules of thumb can vary, which seems to be Ritters point.
One way is to shorten the maturity of the bonds.
The other way is to invest in bonds that provide protection against inflation.
They are issued by the U.S. government and are called Treasury Inflation-Protected Securities (TIPS).
The coupons and principal amounts are automatically adjusted upwards whenever the Consumer Price Index (CPI) increases.
A target date fund that invests in TIPS thus reduces the inflation risk that the portfolio is exposed to.
For more detail, read the rest of the article at the link below.
Target Date Funds are Riskier Than You Think| Forbes
Photo bygeralt.
