Target date mutual funds

Target date mutual funds let you invest in a single portfolio with an asset mix that becomes more conservative as the target date nears. These funds are often used as an investor's single portfolio when investing for retirement. The investor generally does not have to worry about rebalancing the portfolio as they age. 

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What is a target date mutual fund?

A target date mutual fund is a type of asset allocation mutual fund where the mix of securities and asset classes, equities and fixed income for example, gradually shifts as your target date for needing the money (usually for retirement) draws near.

  • Target date mutual funds follow a glide path that begins with a higher allocation to equity securities that gradually declines corresponding with an increase in fixed income securities to become more conservative as the target date nears. 
  • Most target date mutual funds invest in mutual funds or ETFs (exchange-traded funds) to gain the desired exposures. 
  • A target date series is made up of several target date mutual funds issued by the same firm that are divided into 5-year vintages (e.g., 2025, 2030, 2035, etc.) with an investor selecting the vintage that is closest to the year they plan to retire or need the money. 

Why hold target date mutual funds in your portfolio?

A target date mutual fund can serve as an investor’s all-in-one portfolio solution. The investor typically does not have to rebalance the portfolio as their risk tolerance changes over time because the fund already does this. 

What are target date mutual funds' pros and cons?

  • Pros

    Automatic adjustments
    The fund's asset mix is automatically adjusted over time and becomes more conservative as the target date gets closer. 

    All-in-one portfolio
    A target date mutual fund can serve as an investor’s sole fund in a portfolio rather than selecting several funds to create a similar asset allocation mix. 

  • Cons

    Set allocations
    An investor does not have the ability to adjust allocations if their risk tolerance changes. 

    Income not guaranteed
    Target date mutual funds are designed to meet an investor’s needs usually through retirement; however, there is no guarantee that the funds will generate the income needed. 

What are other factors to consider when choosing a target date mutual fund?

  • Calendar icon

    Retirement year

    An investor selects the target date mutual fund vintage (year) that is closest to their expected retirement or target date.

  • Asset Allocation icon

    Asset allocation changes in retirement

    A target date mutual fund's mix of assets will either remain static at expected retirement (a "To" fund) or continue to change through expected retirement (a "Through" fund) becoming more conservative and income-oriented.

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