We Know: All about One-Stop Mutual Funds

What are One-Stop Mutual Funds?

Mutual funds are funds invested in a pre-chosen stock portfolio in such a way that your risk is minimized. Depending on the length of your planned investment time, your mutual fund may be invested aggressively in high-risk funds, or it may be invested more conservatively in lower-yielding but less volatile funds. Most people want their mutual funds to grow less volatile as time passes. The problem? You have to remove the money from your first mutual fund and place it into a second fund -- and depending on what money is invested and how it's invested, you may lose money or pay penalties. A one-stop mutual fund automatically adjusts to less-volatile investments as time goes on.

How Does It Work?

Early in a one-stop mutual fund's lifetime, it will be heavily invested in stocks. Stocks are well-known as the most volatile financial instruments you can hold, and they will fluctuate pretty wildly. Overall, though, if you hold on to stocks, their value increases much more quickly than the value of other financial instruments. Later, the fund will divest in stocks and start purchasing bonds and other "safe" investments. By the time your one-stop mutual fund has hit maturity, almost all its value will be in the safe holdings of stocks and cash.

How Do I Choose a One-Stop Mutual Fund?

Look for a mutual fund that focuses on being a one-stop fund. This will minimize your fees as changes occur in your funds, and assure that your money is being handled by someone who is experienced with this sort of investing.

Where Can I Find a One-Stop Mutual Fund?

You should be able to find one-stop mutual funds through most companies that deal in mutual funds, especially companies that specialize in retirement investing. You may find these funds are also called target-retirement funds or lifestyle funds, which are actually two types of one-stop funds. Target-retirement funds are designed to mature on your retirement, and you buy into them at pre-set levels prior to retirement -- for instance, if you're 45 and you want to retire at 65, you'd buy one that has 20 years to go, meaning it probably will have more bonds and fewer stocks than one with 30 or 40 years to go. Lifestyle funds give you more direct control over your investments but let you retain much of the safety net of a mutual fund. With these, you choose from three levels of risk, from conservative to aggressive, and you can shift between these levels yourself when you want.

What Else Should I Know?

One-stop mutual funds are not hands-off mutual funds; you should still keep a close eye on them. In the early days, when your investments are primarily in stocks, you should be ready to see large losses as well as large gains; once you're comfortable with your investment company, you should probably not even look at them more than once per year. If anything catastrophic happens, the manager of your mutual fund should take care of adjusting your finances so that your losses are minimal. Later, as the fund grows to maturation, you should see a financial planner to determine how you want to withdraw your money and shield it from taxes.

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