Target Date

Target Date Funds are funds managed with a specific end date in... Target Date Funds are funds managed with a specific end date in mind. They are only currently offered as mutual funds, as opposed to exchanged traded funds (ETFs). Typically, a Target Date Fund is named with a particular year in mind. For example, a Target Date 2060 fund will be managed with the goal of achieving the best risk-adjusted return by the year 2060. In the earlier years of its existence, a Target Date fund will usually hold riskier assets (such as equities) that have the potential to generate higher returns. As time goes on, the fund’s managers then typically hold a higher weighting in conservative investments (such as investment-grade fixed-income). Think of the strategy behind a Target Date fund as building the capital in the earlier years, and then preserving the capital and focusing on generating income in the latter years. Target Date Funds are usually purchased by investors who seek to fund a significant financial goal. Most often this goal is retirement, although it’s also common to purchase a Target Date Fund to save for a child’s college tuition. The advantage of a Target Date Fund is that it’s essentially an all-in-one investment solution for a saver’s particular need. A Fund’s managers (not the investors) do the work of rebalancing the assets every year to best achieve the long-term investment goal. As such, an investor does not have to do the legwork of deciding what the best asset allocation is at any one time. A downside to Target Date Funds is that there’s no guaranteed return, unlike, say, an annuity. The return for a particular Fund will come down to the decisions of the managers, as well as the performance of equity and fixed-income markets. In addition, fees on Target Date Funds can be high, as they are often considered “funds of funds”. So investors end up paying the fees of the fund itself, plus the fees of the various funds that are owned by the managers. Last Updated: 12/27/2024 View more View less

Target Date Funds are funds managed with a specific end date in mind. They are only currently offered as mutual funds, as opposed to exchanged traded funds (ETFs). Typically, a Target Date Fund... Target Date Funds are funds managed with a specific end date in mind. They are only currently offered as mutual funds, as opposed to exchanged traded funds (ETFs). Typically, a Target Date Fund is named with a particular year in mind. For example, a Target Date 2060 fund will be managed with the goal of achieving the best risk-adjusted return by the year 2060. In the earlier years of its existence, a Target Date fund will usually hold riskier assets (such as equities) that have the potential to generate higher returns. As time goes on, the fund’s managers then typically hold a higher weighting in conservative investments (such as investment-grade fixed-income). Think of the strategy behind a Target Date fund as building the capital in the earlier years, and then preserving the capital and focusing on generating income in the latter years. Target Date Funds are usually purchased by investors who seek to fund a significant financial goal. Most often this goal is retirement, although it’s also common to purchase a Target Date Fund to save for a child’s college tuition. The advantage of a Target Date Fund is that it’s essentially an all-in-one investment solution for a saver’s particular need. A Fund’s managers (not the investors) do the work of rebalancing the assets every year to best achieve the long-term investment goal. As such, an investor does not have to do the legwork of deciding what the best asset allocation is at any one time. A downside to Target Date Funds is that there’s no guaranteed return, unlike, say, an annuity. The return for a particular Fund will come down to the decisions of the managers, as well as the performance of equity and fixed-income markets. In addition, fees on Target Date Funds can be high, as they are often considered “funds of funds”. So investors end up paying the fees of the fund itself, plus the fees of the various funds that are owned by the managers. Last Updated: 12/27/2024 View more View less