A target-date fund is a fund of funds that provides asset-class diversity through a blend of stocks and bonds. Portfolios are adjusted for lower risk as they approach a designated target date. These funds are commonly used to invest for retirement, with the target date aligning with shareholders’ expected year of retirement.
Target-Date Funds
What is a target-date fund?
- Target-date funds offer investors a multi-asset portfolio that adjusts risk according to an investor’s time horizon.
- Target-date funds add an extra layer of fees on top of those on the underlying funds they invest in.
- “To” funds reallocate assets up to the target date, while “through” funds continue to reallocate through the target date.
A target-date fund offers diversified exposure to a mix of asset classes such as domestic stocks, foreign stocks, domestic bonds, foreign bonds, and sometimes cashlike securities. Management will reallocate assets based on the fund’s glide path as the fund approaches its target date, reducing risk accordingly.
Target-date funds add a fee in addition to the fees on the underlying funds. However, they provide a valuable service to investors by relieving them of the need to manage their portfolios themselves.
Standard target-date funds, known as “to” funds, will fix their asset allocation upon reaching the target date. “Through” funds, on the other hand, continue to reallocate assets after the target date.
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