What Is a Target Date Fund and How Does It Work in a 401k?

You select the fund closest to your expected retirement year, such as a 2035 or 2045 fund, and the fund automatically adjusts its asset allocation over time, starting with a heavier stock weighting when retirement is far away and gradually shifting toward bonds and more conservative investments as the target date approaches. This automatic rebalancing, known as the glide path, is designed to reduce risk as you near and enter retirement without requiring you to actively manage the portfolio. Target date funds are the default investment option in many 401(k) plans and are a reasonable starting point for hands-off investors. However, they are not customized to your individual financial situation, risk tolerance, or other assets you may hold outside the 401(k). Two people retiring in the same year can have very different financial needs. At Moore Invested, we evaluate whether target date funds are appropriate within a client’s broader investment mix or whether a more tailored allocation would better serve their retirement goals.

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