Jim over at Bargaineering (formerly Blueprint For Financial Prospertiy) posted a review of Jim O’Donnell’s book “The Shortest Investment Book Ever.” The other week he offered his readers a chance to ask questions for an upcoming interview with the author. Guess who got a question selected? That’s right – this guy! Please go check out the entire interview, but I’ve pulled out my portion of the Q&A below:

Thomas asks: I have not read the book, so maybe this is being covered but what do you specifically find attractive or unattractive about target based retirement funds? These are being pushed out to small investors as easy ways to take advantage of low cost funds and adhere to the rebalancing of an account automatically.

Dear Thomas,
“Target-dated” mutual funds, also called “lifecycle funds,” serve a good purpose for those of us who HATE or FEAR investing. After all, under our economic system, in which 62 million Americans save for their own retirements through 401(k and 403(b) plans, target-dated funds can offer a reasonable compromise to doing nothing, doing the wrong thing, or becoming a wreck thinking about what we don’t want to think about. They automatically do the needed, occasional rebalancing, which is a great plus for the “scaredy cat” and the unknowing. Where I think they can still be improved, in some cases, is in their expenses, and, too, in their diversification, which does not take many target-dated funds into enough worthwhile, asset class diversification. Too often, target-dated funds give an investor stocks and bonds only, which will do OK; but I’d prefer to see them include foreign stocks, emerging market equities, and real estate, too.

The reason I asked was because I do in fact invest in a lifecycle fund. I agree with Jim about target funds being very easy for those who are uncomfortable with investing. I started my IRA in 2004 and had very little knowledge of the market. With that in mind, I chose a target fund to help take the burden off of me to figure out what to do. I still buy this fund as I have many other investments in my portfolio that I try to juggle. it’s nice to have something to not constantly check on. Jim also points out that targeted funds should include other areas besides stocks and bonds. This is a very good point, but I wonder where in the cycle these investments would occur. I can only imagine how a fund targeted for 2010 or 2015 would be doing had they been heavy in real estate.

For getting my question selected, I have won a copy of the book. Based on the review by Jim and the interview, I would have put this on my purchase list. The best part about it is that it’s (currently) under $10. That’s a small cost for the amount of information that you’ll be able to get from this book. Once I receive and read the book, I will post my comments and highlights for you.  Thanks Jim and James!