Target-date Fund

What is a target-date fund? 

A target-date fund (sometimes called a lifecycle fund) is a type of investment designed with a specific retirement year in mind. These investments can hold a mix of assets, typically stocks, bonds, and sometimes cash equivalents. They are typically designed to become more conservative as the “target” retirement date approaches, by gradually shifting the asset mix over time. 

How do target-date funds work? 

When investors select a target-date fund, they usually have an option to choose the fund with a target date closest to their expected retirement year. For example, if you plan to retire in 2050, you could consider choosing a 2050 Target Date Fund. Some common features of target-date funds often include:

• Automatic rebalancing: Target-date funds seek to rebalance their asset allocation over time. Typically, as the fund gets closer to its “target retirement date,” the investment is intended to become more conservative, potentially reducing investor exposure to riskier stocks and increasing their allocation in more conservative bonds. Please be aware that portfolio rebalancing does not ensure a profit or protect against loss. 
• Built-in diversification: By holding a mix of assets, target-date funds can help offer built-in diversification, which can help reduce risk and respond to market fluctuations.*

*Diversification does not ensure a profit or protect against loss.

Why do target-date funds matter? 

Target-date funds can help offer a convenient approach to investing and asset allocation. They may be worth considering for 401(k) participants who are new to investing or those who want a more hands-off approach, since the fund manager is usually the one who is taking care of the portfolio rebalancing instead of the participant. 

When potentially choosing a target-date fund, some items you could consider include:

• Risk tolerance: While target-date funds can offer convenience, they don’t usually take into account your specific comfort level with risk, so it is always best practice to first understand the risks associated with the fund before investing. 
• Fees: We believe it is key to compare the expense ratios of different target-date funds offered in your 401(k) plan to have a full understanding of the cost you may be paying for the management of the fund. 
• Investment goals: If you have specific retirement goals or investment preferences, target-date funds may not always offer a high degree of customization, which may be a key item for consideration for some individuals. 

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This content has been prepared for informational purposes only, and should not be construed as tax, legal, or individualized investment advice. Neither Human Interest Inc. nor Human Interest Advisors LLC provides tax or legal advice. Consult an appropriate professional regarding your situation. The views expressed are subject to change. In the event third-party data and/or statistics are used, they have been obtained from sources believed to be reliable; however, we cannot guarantee their accuracy or completeness. Investing involves risk, including risk of loss. Past performance does not guarantee future results.