What is a target date fund?

A target date fund is a mutual fund that automatically rebalances its asset allocation to become more conservative as the target date—the date when investors are expected to retire—approaches.

The target date is typically set at 10 or 15 years before retirement, though some funds have a longer time horizon. The asset allocation of target date funds is usually a mix of stocks, bonds, and cash.

The hope is that by the target date, the fund will be conservative enough that retirees won’t have to worry about losing money in a market downturn, yet still have enough growth potential to keep up with inflation.

Target date funds are often used in employer-sponsored retirement plans, such as 401(k)s, as a way to give employees a hands-off approach to investing.

But target date funds are not without their critics. Some believe that the funds are too often used as a one-size-fits-all solution, without regard for an investor’s individual circumstances. Others argue that the funds’ glide paths—the way they automatically get more conservative over time—are too aggressive and do not properly account for retirees’ need for income.

Still, target date funds can be a good solution for many investors, particularly those who don’t want to actively manage their investments. When selecting a target date fund, it’s important to pay attention to fees, asset allocation, and the fund’s glide path.