What’s a Target Date Fund

What’s a Target Date Fund? 

Determining your retirement timeline helps direct the level of risk for your investment. Target date funds can be used to help build and maintain an age-appropriate retirement investment strategy. A target date fund (also called a lifecycle fund) provides long-term appreciation and capital preservation based on your age or target retirement date through a mix of asset classes. 

How do target date funds work? 

Set it and forget it…that’s one way people think about target date funds. Target date funds age with you by selecting a growth-oriented portfolio when you’re younger that gets more conservative as you near retirement. For example, a portfolio while you’re younger might feature more stocks and higher-risk investments rather than fixed-income investments, such as bonds. As you get older, your portfolio moves toward bonds and money market accounts because they have less risk. 

Pick your target date fund

First, you’ll select your ideal retirement year. This doesn’t have to be set in stone. Instead, it’s a general goal to help you pick which target date fund so you’ll have a timeline that aligns with your age. Usually funds are available in five-year increments (2035, 2040, 2045, etc.). For example, let’s say you’re 39 and plan to retire when you’re 70, which would be in year 2051. You’d select the target fund year closest to 2051, so you’d select a Target 2050 fund. 

Why do participants choose target date funds? 

People like the ready-made, simplicity of a target date fund. It’s not complicated and the assets are allocated without having to select each stock, bond, etc. Some investors get into trouble if they panic and pull funds instead of riding out market issues. With a target date fund, investors are in it for the long haul. 

Interested in learning more? Contact Retirement Plan Consultants for guidance!