Think about all the elements you need to be a successful index investor. First, you need to choose the right mix of stocks and bonds, and to adjust that mix as you approach retirement. Your portfolio needs to be broadly diversified and low-cost. You need to save part of your paycheque in a disciplined way, rebalancing your portfolio from time to time, and resist distractions so you won’t be tempted to abandon your plan.
If you have a defined contribution pension plan or group RRSP through your employer, there may be a simple solution: the target date fund. These products were created in the 1990s for workplace investment plans in the US, and they’re now widespread in Canada, with BlackRock’s LifePath and Fidelity’s ClearPath family the most common. These incumbents will now face a challenge from Vanguard, who manages over $358 billion USD in target date funds in the US and recently announced its own series of Target Retirement Funds in Canada.
The idea behind target date funds is brilliantly simple: each one is balanced portfolio of bonds and global equities in various proportions,