Target-Date Fund
IntermediateA target-date fund is an investment fund that automatically adjusts its mix of assets, becoming more conservative over time as it approaches a specific target year, usually the investor's expected retirement date.
Target-date funds are designed to be a simple, all-in-one solution for long-term savings. The fund's name usually includes the target year, such as a "2055 Fund" for someone planning to retire around 2055.
When the target date is far away, the fund invests mostly in shares to pursue growth. As the date approaches, it gradually shifts towards bonds and cash to reduce risk. The planned path of this shift is called the glide path.
For example, a 2060 fund might hold around 90% in shares and 10% in bonds today, moving to perhaps 40% shares and 60% bonds by 2060. The exact mix varies between fund providers.
Target-date funds are widely used as default options in workplace retirement plans, especially in the United States, because they require little effort from savers. Investors simply choose the fund closest to their retirement year.
They have limitations. All investors with the same target year receive the same asset mix, regardless of their personal risk tolerance or other savings. Fees and glide paths vary considerably between providers, so funds with the same target date can perform differently.
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