target date fund
A mutual fund that automatically adjusts its asset allocation from aggressive to conservative as the target retirement date approaches, offering a one-fund retirement solution.
Example
“The employee chose the 2045 target date fund, knowing it would gradually shift from stocks to bonds as she neared retirement.”
Memory Tip
TARGET date fund = set it and forget it. Auto-adjusts as your target retirement year approaches.
Why It Matters
Target date funds simplify retirement planning by eliminating the need to manually rebalance your portfolio as you age. This automatic adjustment helps protect your savings from excessive risk as you approach retirement, making it an ideal solution for people who prefer a passive investment strategy without constant monitoring.
Common Misconception
Many people believe that target date funds are completely hands-off and require no attention after purchase. In reality, you should periodically review whether your fund is still aligned with your actual retirement goals and risk tolerance, as different funds have varying glide paths and fee structures.
In Practice
A 35-year-old investor opens a target date fund set for 2055 retirement with an initial 80 percent stocks and 20 percent bonds allocation. As the years pass, the fund automatically shifts to become more conservative, gradually moving to 60 percent stocks and 40 percent bonds by age 50, then to 40 percent stocks and 60 percent bonds by age 65, reducing volatility as retirement approaches.
Etymology
TARGET (goal, intended) DATE (the retirement year) FUND. A fund automatically managed toward a TARGET DATE.
Common Misspellings
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