Featured Financial Term

TARGET DATE Funds

A target date fund is a fund of funds that allows you to invest in a portfolio with a particular time horizon, typically your expected retirement date. Each target date fund characteristically has a date in its name, such as Fund 2020, Fund 2030, Fund 2040, or Fund 2050, and so on. You choose one whose date is closest to the date you plan to retire.

A target date fund aiming at a date in the somewhat distant future tends to have a fairly aggressive asset allocation, with a focus on equity funds. As the target date approaches, the fund is reallocated to become more conservative to preserve the assets that have accumulated and provide income. The pace of that reallocation is known as the fund's glide path.

Each fund company's glide path, which is based in part on its approach to risk, differs somewhat from the glide paths of similar funds, so that the allocation of one Fund 2025 may be noticeably different from the allocation of a Fund 2025 from a different company. For example, some funds remain more heavily invested in equities at maturity than others.