Advisors Weigh In On Index Funds For Boomers
Baby boomers who ask financial advisors whether index funds should be part of their retirement saving strategy may get very different answers depending on whom they look to for advice.
Some advisors say they are avid index fund fans and use them as a building block in retirement plans. Others are cooler to the idea, noting that there are actively managed funds that can provide returns as good as an index fund.
Those index fund returns, according to Morningstar Inc, Chicago, are 14.28% year to date, and 10.18% for a one-year average.
Index funds “dampen volatility and enhance returns,” says enthusiast Gordon Bernhardt, a CFP practitioner with Bernhardt Advisory Services, McLean, Va. He cites a lower expense structure for index funds than for actively managed funds in part due to greater tax efficiency from holding securities rather than more active trading a managed fund would experience.
For boomers approaching retirement, Bernhardt recommends reducing equity exposure by investing less in equity index funds and more in fixed income index funds that buy securities with a maturity of less than five years.
Scott Kays, a CFP practitioner and principal of Kays Financial Advisory Corp., Atlanta, says index funds are effective when used in the large cap stock area.