A target-date fund is a mutual fund designed for investors planning to retire around a specific year. The fund automatically adjusts its asset allocation from aggressive (more stocks) to conservative (more bonds) as the target date approaches — a process called the glide path. Target-date funds are popular in 401(k) plans because they provide a diversified, hands-off investment approach. They are often used as default investment options in employer plans.
Target-Date Fund
Definition
A target-date fund is a mutual fund designed for investors planning to retire around a specific year. The fund automatically adjusts its asset allocation from aggressive (more stocks) to conservative (more bonds) as the target date approaches — a process called the glide path. Target-date funds are popular in 401(k) plans because they provide a diversified, hands-off investment approach. They are often used as default investment options in employer plans.
Example
A 30-year-old planning to retire in 2060 might invest in a Target-Date 2060 Fund, which currently holds 90% stocks and 10% bonds. By 2050, it might shift to 60% stocks and 40% bonds.
Key Points
- 1Automatically adjusts allocation as retirement approaches
- 2Named by target retirement year (e.g., 2040, 2050, 2060)
- 3Provides built-in diversification and rebalancing
- 4Common default option in 401(k) plans
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