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Learning the best way to invest requires time and energy. Fortunately, mutual funds have simplified investing for an average investor. Within the past few years the process of selecting mutual funds has been made easier. Target retirement funds are now available through major mutual fund families, and are offered by many 401(k) plans as well.

The target retirement fund advantage: one-stop shopping, virtually no investment knowledge or experience necessary. Just buy and hold, pay your fees/expenses as well as maybe sales charges. Professional money managers handle all of the investment decisions in accordance with the retirement year you pick. Just select the target fund closest to the year of your planned, or past, retirement. Example: target retirement 2030 fund will be appropriate if you intend to retire within two or 3 years of the year 2030.

Once invested you never need to make another investment decision or worry about the way to invest. As you approach retirement and become more conservative, so does your investment portfolio.

Target retirement funds can be mutual funds that simply invest in other stock funds, bond funds, and money market funds of the exact same mutual fund company. Target funds dated far in to the future, like target 2040 or 2050, will be heavily invested in stock funds for several years to come. If you invest in a target 2020 fund today, your hard earned money will be invested primarily in stock funds and bond funds, mostly stock funds the first couple of years.

If you're already retired and do not know-how to invest, you might consider putting your nest egg into the safest of these funds, the retirement income fund. These target funds invest about 80% of your money in safer income-producing investments like bond funds and money market funds to present you with income in retirement.

It doesn't get much easier. Plus, you can save thousands on mutual fund sales charges by buying one of these funds through a no-load mutual fund family rather than through an investment management professional.

Target funds are the easy way to invest in a professionally managed retirement portfolio targeted to your station in life. The idea behind these investments: young people need growth and will accept higher risk, middle aged investors will accept moderate risk for higher-than-average returns, and older folks will accept some risk to earn a larger level of income in retirement.

The problem is: if you don't understand investment basics or the way to invest determined by your personal risk tolerance, you could select a target fund that is not really appropriate for you. Put simply, the exact same shoe will not fit all investors of a given category. Some young people are conservative, and several retired folks are uncomfortable taking even a small risk with their retirement nest egg.

Like with some other mutual fund, you'll need to understand the nature of the investments held in a target retirement fund portfolio. Virtually any of these funds can lose money, and in 2008 the vast majority of them did. Why? As these funds have market risk, and 2008 was a horrible year for the currency markets. Let's take a more in-depth look at the risk involved.

If you intend to retire in 2040 and invest in a target retirement 2040 fund, 90% or even more of your assets will be invested in stocks. If the stock market drops 40% as it did recently, expect that you're going to lose almost 40% of your investment value. A 2050 target fund may very well be 95% invested in stocks.

If you intend to retire in 10 or 2 decades, beware that a 2020 target retirement fund will be about 60% invested in stocks and also a 2030 fund about 80%. In the event you are uncomfortable with this risk, consider putting all or some of your retirement assets into a safer target fund. By way of example, a 2010 fund bought today would only be about 25% invested in stock funds.