Target date fund
What is a target date fund?
It's an age-related investment product that enables you to take more risks with your money when you’re young and gradually get more conservative over time. As you edge closer to your savings goal, such as your retirement, the fund moves your savings into less risky assets, such as bonds.
Where have you heard about target date funds?
In the US, target date funds are extremely popular. Millions of people with 401(k) pension plans, which are the American equivalent of a private pension, now hold their savings in some form of target date fund.
What you need to know about target date funds.
In the UK, only a handful of providers currently offer target date funds, but with the retirement age no longer set at 65, they could be set to grow in popularity.
Different target date funds mature on different dates in the future. So if you’re aiming to retire in 2060, you’d pick a 2060 target date fund, while an older worker might choose a 2035 target date.
The fund manager uses what’s called a 'glidepath' to adjust the mix of investments that make up your target date fund. The 2060 fund would probably be weighted heavily toward stocks, with a relatively small percentage of bonds and cash, while the 2035 fund would hold more bonds and cash so it would be less volatile.