How to create your own target-date mutual fund

You may have heard of target-date funds. In 2006 they were okayed as default investment options for 401k accounts, so if you said nothing about where you wanted your 401k money to go, you might even have found yourself the proud owner of one.

A target-date fund is a mutual fund that is made up of other mutual funds. It's sort of an all-in-one solution that contains a variety of fund types in an attempt to create a diversified portfolio that could serve as all the investing a person needs. Each target fund has a year in the future associated with it, intended as an approximation of the investor's planned retirement date. So a target fund dated 2015 would be more conservatively invested than one dated 2040.

Are they a good idea for you? Well, target-date funds are not terrible. They make reasonable default options, but you can probably do much better. To understand what might make them less than ideal, consider the following.

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