Target date fund

Target date fund

A Target date fund - also known as a lifecycle or age-based fund - is a collective investment scheme, usually a mutual fund, designed to provide a simple investment solution through a portfolio whose asset mix becomes more conservative as the target date (usually retirement) approaches.

Lifecycle funds were first introduced in the 1990s (Fidelity introduced their first target date fund in 1996), but their popularity has increased significantly in recent years.

These funds are aimed at people planning for retirement and have appeal because they provide a guaranteed value at a specific time. For instance, a 2020 target dated fund provides exposure to some form of growth security (US equities, international equities) while guaranteeing the original investment provided the fund is held to maturity. In some cases, these funds also have a guarantee that rises with the market value of the fund, locking in gains monthly, or in some cases daily.

For investors who will be highly dependent on their retirement savings (rather than a company pension plan, for example), the security of the principal guarantee is appealing.

Because the issuing organization is contractually obliged to meet the guarantee commitment, they alter the funds' allocation to emphasize cash and fixed income elements as the funds approach their maturity dates. By reducing exposure to the growth elements, the risk of market value being lower than the guaranteed value at maturity diminishes.

The funds are not without their critics, who point to the tendency for additional costs to be associated with target date funds, the reduced opporunities for growth over time, and the fact that the probability of negative returns from equity markets in general over a period of several years is relatively low.

Wikimedia Foundation. 2010.

Look at other dictionaries:

  • Target-Date Fund — A mutual fund in the hybrid category that automatically resets the asset mix (stocks, bonds, cash equivalents) in its portfolio according to a selected time frame that is appropriate for a particular investor. A target date fund is similar to a… …   Investment dictionary

  • Target Field — Location 1 Twins Way (3rd Ave. N, between 5th St. N and 7th St. N) Minneapolis, Minnesota …   Wikipedia

  • Mutual fund — This article is about mutual funds in the United States. For other forms of mutual investment, see Collective investment scheme. A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors… …   Wikipedia

  • Balanced Fund — A fund that combines a stock component, a bond component and, sometimes, a money market component, in a single portfolio. Generally, these hybrid funds stick to a relatively fixed mix of stocks and bonds that reflects either a moderate (higher… …   Investment dictionary

  • Asset Allocation Fund — A mutual fund that provides investors with a portfolio of a fixed or variable mix of the three main asset classes stocks, bonds and cash equivalents in a variety of securities. Some asset allocation funds maintain a specific proportion of asset… …   Investment dictionary

  • Hybrid Fund — A category of mutual fund that is characterized by portfolio that is made up of a mix of stocks and bonds, which can vary proportionally over time or remain fixed. Morningstar separates hybrid funds into domestic hybrid and international hybrid… …   Investment dictionary

  • Index fund — An index fund or index tracker is a collective investment scheme (usually a mutual fund or exchange traded fund) that aims to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held… …   Wikipedia

  • Hedge fund — A hedge fund is a private investment fund open to a limited range of investors which is permitted by regulators to undertake a wider range of activities than other investment funds and which pays a performance fee to its investment manager.… …   Wikipedia

  • United Nations Children's Fund — Infobox UN name = image size = 250px caption = UNICEF Logo type = Fund acronyms = UNICEF head = Ann Veneman status = Active established = 1946 website = parent = ECOSOC commons = United Nations footnotes = is called… …   Wikipedia

  • Nuclear Liabilities Fund — The Nuclear Liabilities Fund (formerly the Nuclear Generation Decommissioning Fund) is a fund of the UK Government to provide arrangements for funding certain long term costs for the decommissioning of eight nuclear power stations formerly owned… …   Wikipedia