What is a target date fund designed to do?

A target date fund is specifically designed to automatically adjust its asset allocation based on a specified retirement date. This means that the fund's investment mix, which typically includes stocks, bonds, and other assets, will gradually shift from a more aggressive allocation (with a higher percentage of stocks) to a more conservative one (with a higher percentage of bonds) as the target date approaches. This feature is particularly beneficial for investors who want a hands-off approach to retirement investing, as it effectively manages risk as the investor nears retirement age.

The automatic rebalancing of the fund aims to reduce exposure to high-risk assets as the target date, often aligned with the investor’s expected retirement year, draws closer. This makes it easier for individuals to plan for retirement without needing to continually monitor and adjust their investments.