When it comes to investment products, target date funds (TDFs) can seem like the simple and safe “set it and forget it” option. For some that may be true, but if used incorrectly, they can work against you.
Sometimes called “life cycle funds,” a TDF is a fund that holds a mix of stock, bonds, and other investments. They are designed to be long-term investments for a future target retirement date.
Anybody can invest in a TDF, but they are generally most effective for younger investors and those who have less complex financial needs.
Generally speaking, the farther away a TDF is from its target date, the higher the ratio of stocks it holds. And as it gets closer to its target date, the fund automatically shifts more towards bonds.
Our research shows us that people who eventually decide to move away from TDFs are looking to:1
- Diversify their investments
- Personalize their portfolios
- Get investment help from an advisor
Most people who have TDFs allocate money into additional funds to try to achieve greater diversification or more personalized risk levels. But remember, a TDF is already diversified, and using one for only part of your retirement assets can result in lower returns.
Talk to an Advisor
Our advisors are happy to speak with you to make sure your TDF is working for you and to answer other questions you may have. We can help:
- Evaluate and make recommendations on the investments in your plan
- Help you think about how much to save
- Look ahead at your retirement goals to see if you’re on track