Learning how to invest requires time and effort. Fortunately, mutual funds have simplified investing for the typical investor. Within the past couple of years the process of selecting mutual funds has been made easier. Target retirement funds are now available through major mutual fund families, and also are provided by many 401(k) plans also.

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 line 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 would be appropriate in the event you plan to retire within two or three years of the year 2030.

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

Target retirement funds are typically mutual funds that simply invest in other stock funds, bond funds, and money market funds of the 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 many years to come. If you invest in a target 2020 fund today, your money will be invested primarily in stock funds and bond funds, mostly stock funds the first number of years.

In the event you are already retired and do not know how to invest, you might consider putting your nest egg in to the safest of these funds, the retirement income fund. These target funds invest about 80% of your hard earned money in safer income-producing investments like bond funds and money market funds to supply you with income in retirement.

It doesn't get much easier. Plus, you may save thousands on mutual fund sales charges by buying one of these funds by way of a no-load mutual fund family in place of through an investment 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 as well as can 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 better amount of income in retirement.

The problem is: if you don't understand investment management basics or how you can invest based on your personal risk tolerance, you might select a target fund that is not really appropriate for you. Quite simply, the same shoe will not fit all investors of a given category. Some young people are conservative, and many retired folks are uncomfortable taking even a small risk with their retirement nest egg.

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

If you plan 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 will lose almost 40% of your investment value. A 2050 target fund may very well be 95% invested in stocks.

In case you plan to retire in 10 or 20 years, beware that a 2020 target retirement fund will be about 60% invested in stocks as well as a 2030 fund about 80%. In the event that you are not comfortable with this risk, consider putting all or some of your retirement assets into a safer target fund. For example, a 2010 fund bought today would only be about 25% invested in stock funds.