Target-Date Funds: Retirement Investing in One Step
Target-date funds1, also known as target-retirement or life-cycle funds, are available in many retirement plans and offer diversification2 and a strategy that seeks to reduce investment risk over time — all in one fund. Each target-date fund has a mix of investments, such as stocks (equity) and bonds (fixed income), that invest in underlying stock and bond funds in proportions that gradually become more conservative over the years as the target date approaches. Over time, the percentage of stock funds in the target fund gets lower as the percentage of bond funds increases, reducing risk but continuing to invest in some higher-risk assets even as the target date approaches. In short, here’s how it works:
You pick a fund with a target year that’s closest to the year you plan to retire and begin taking withdrawals.
For example, if you’re around age 40 and plan to retire in about 15 years, you might choose to invest in a 2040 fund. Leading up to and even after your retirement year, the fund's allocations will become more conservative with a higher percentage in bonds.
Investment professionals regularly maintain a diversified portfolio.
Investments are chosen to be consistent with each fund’s objective. The specific fund you choose is created to have the right mix of different types of investments — such as stocks and bonds.
The funds are intended to be withdrawn over a long retirement.
The amount of risk in each fund is designed to decline over the years as you live out your retirement. They are not, however, guaranteed to prevent losses, and will continue to invest in some higher-risk assets even after the target date is reached.
Disclosures
¹ A target-date fund is not a complete solution for all of your retirement savings needs. An investment in the fund includes the risk of loss, including near, at, or after the target date of the fund. There is no guarantee that the fund will provide adequate income at and through an investor's retirement. Selecting the fund does not guarantee that you will have adequate savings for retirement.
² Diversification does not protect an investor from market risks and does not assure a profit. An investor must consider the risk associated with all investments used to diversify assets.