Target-date funds employ one of two basic asset-allocation strategies once you reach retirement age. Here’s why that matters.
Target-date funds make investing for retirement relatively easy. Choose a fund with the year in its name closest to the time you plan to retire, then sit back and let the fund’s managers decide how much of your savings to invest in stocks and bonds (and occasionally other asset classes). But what happens when your target-date fund hits the target year? The answer varies, depending on which sponsor’s fund you own.
Target funds become more conservative over time, as their managers trim a fund’s allotment to stocks and boost the allocation to bonds and cash. And every target fund follows its own “glide path”—the shift in asset mix over time.
Broadly speaking, there are two kinds of target-date funds. The glide path of one group takes you “through” the target date, continuing to shift the asset mix over a predetermined number of years. Such funds typically hit the target year with 50% of their assets in stocks and reach the end of their glide paths with 30% in stocks.
This story is from the September 2017 edition of Kiplinger's Personal Finance.
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This story is from the September 2017 edition of Kiplinger's Personal Finance.
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