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Investing in a Target Date Fund

To determine whether a target date fund is an investment to consider for your retirement savings, you should understand your own investment style. Does the idea of understanding all of the investment options in your plan and creating a diversified portfolio excite you, or make your head spin? Mutual fund companies created target date funds for people who want a convenient way to invest for retirement.

What's your retirement target?

Is it 2055, 2030, today — or a day in between? You decide — then let the target date fund do the investment work for you. Target date funds are mutual funds diversified across stocks, bonds, and cash alternatives, invested according to the fund’s target date. The target date, which is typically included in the name of the fund, represents the year an individual might consider starting to withdraw his or her money. As the target date approaches, the fund slowly becomes more conservative, with less invested in stocks and more in bonds and cash alternatives. As such, the fund’s objectives and investment strategies may change over time. The principal value of the fund is not guaranteed at any time, including at the target date.

A diversified portfolio with a single choice

A target date fund is designed to provide diversification* in a single investment option. If an individual were to allocate retirement savings to more than one target date fund, or a target date fund in addition to other investment options in his or her retirement plan, the desired asset allocation could shift out of alignment. This strategy could also expose an individual to increased investment risk or reduce chances of meeting longer term retirement goals.

Target date funds offer a convenient way to invest for retirement

Choosing one fund may give an individual a well-diversified portfolio in a single investment. The fund automatically shifts its allocation as time goes by.

Why is it important to shift your portfolio as you near retirement?

Because you have fewer years of earnings, and therefore need to think more about keeping your current savings secure. You also have fewer years to make up any losses, should there be a market downturn. You should select a target date fund that best meets your needs based on your individual circumstances and goals.