Investing in mutual funds by retirement date

[Anonymous]

Does anyone put their money in the mutual funds geared towards retirement “class dates,” even if the funds aren’t being saved for retirement? Seems to me to be a good way to separate out when you’ll need certain funds and how “safe” the investment is. Say you have $x that you’ll want for a down payment in 5 years, would you put it in a mutual fund geared towards the retirement class of 2020? Seems like it would be a good way to get some growth (i.e. more than a CD/savings account) but without taking the same risks you would for funds that you don’t need for 20 years (bc those mutual funds are being managed for the goals of a 60 yr old who needs the money fairly soon). Anyone do this?

[Anonymous]

I think the thing to consider is that the those funds are generally managed for people who will begin (or are) drawing on the funds at that time, but they are generally not expecting that people will withdraw all of their money at once at that date.

The target retirement funds are generally expecting that you will need money over a period of 20-30 years and because of that they usually have a substantial investment in stocks (anywhere from 20-60%).

But if you need money for a downpayment, you will be pulling all that money out at once and I think you want much less, if any, stock exposure.

A better comparison would be the college education target funds, although even there you will see some have 20% equity during college and some have it all in FDIC accounts during college (and I am not sure you can invest in them outside of a 529).