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The Best Funds for Built-In Diversification

Balanced funds can play a useful role, but target-date funds look more compelling overall.

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Target-date funds, which offer a preset mix of major asset classes that automatically shifts over time for investors with a specific retirement date, are the Rodney Dangerfield of the investment world: They get no respect. Somewhat inexplicably, these funds have attracted more than their fair share of criticism. Financial advisors often dismiss them as cookie-cutter solutions: Because they offer the same portfolio for everyone with a given retirement date, the argument goes, they’re not sufficiently customized to meet an investor’s unique level of risk tolerance or other portfolio needs. Similarly, author and financial expert Michael Falk has criticized target-date funds for failing to customize their asset allocations for investors with different levels of wealth and taking on too much equity-market risk, which could hurt retirees in a bear market.

Amy C. Arnott does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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