Many of us might notice that even when we decide what kind of mutual funds that we want to invest, it’s sometimes difficult to decide when to invest these funds. Indeed, it’s extremely important to select mutual funds at a perfect time in order to maximize the returns. When select mutual funds for retirement, we need to first figure out the right time horizon for investment.
The time horizon refers to the number of years you have left until you retire. So first calculate how many years you cna invest, this is an important factor which will influence your investment goal, your risk tolerance, and your selection.
If you are young and have many years before retiremnt, you may prefer long-term capital appreciation. Hence, your risk tolerance may also increase. Even if there is a potential decline in your funds during a downturn, It’s possible that the funds can bounce back when you start to withdraw. In other words, in this situation, you can choose a growth fund, which is suitable for your goal and time horizon.
However, if you have shorter time horizon, the your goal might become to start withdrawals soon and to secure income. Under this circumstance, your risk tolerance will decrease, since a significant decline in your funds might lower your income when you retire. That is, you are supposed to choose an income fund, which can help soften losses during a downturn.
A good news for the retirement funds is that many of the large mutual fund companies designed mutual funds specifically for retirees. You might choose a fund that has both characteristics of an income fund and a growth fund.