Should I Invest in a Target Date Index Fund?

Ramsey Everyday Millionaires

Ramsey Network

Business, Careers, Investing

4.8 • 3.6K Ratings

🗓️ 5 March 2025

⏱️ 3 minutes

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Transcript

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0:00.0	This episode is brought to you by SmartVester.
0:08.0	Connect with an investing pro near you at ramsysolutions.com slash smartvester.
0:13.6	Our Ramsey Network app question is from Derek today.
0:18.2	Derek writes, my New Year's resolution is to max out my Roth IRA contribution.
0:23.2	I'm 30 years old.
0:25.0	And I want to know if it's best to contribute to a target date index fund that will
0:31.0	automatically adjust risk as I age or should I just invest in an S&P 500 index fund?
0:38.3	Great nerdy question from our friend Derek.
0:40.9	He has been doing the research.
0:42.5	Yes, he has.
0:43.5	Okay, so I'll give you one man's take on this.
0:47.0	I am personally not a fan of Target Date funds, and here's what they do.
0:51.3	They start out with mostly equities, right?
0:53.7	Stocks. And over time,
0:55.0	they'll start to introduce more bonds into the equation, which will reduce your quote-unquote risk,
1:01.5	but it also reduces your returns. So think about this. You get to retirement age at 60,
1:07.1	and you could make it to 90. So for the next 30 years, you've basically stunted the growth of that account
1:13.1	to the point where it might run out. And so here's my take, and Dave would back me up on this,
1:19.0	it's wise to just stay invested heavily in equities. Now, if you talk to your financial advisor at 16,
1:24.5	you take into account your risk tolerance and all that, they might go, hey, let's put you in 20%, 30% bonds, whatever. But I'm not a fan of Target Day index funds doing that
1:33.7	on your behalf, especially for a young 30-year-old. You want to stay heavily invested in the stock
1:39.2	market versus moving towards those bond funds. So yeah, S&P 500 index fund is great. Growth stock mutual funds are
	...

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