Target Date Funds: What You Need to Know Before Investing | Capital Group

Retirement Planning

Target Date Funds: What You Need to Know Before Investing 

Target date funds are a convenient choice for investors who want professional management for their retirement assets in a single easy-to-use investment. 

Target date funds offer portfolios specifically designed to help participants move closer to attaining their retirement goals of appreciation, income and preservation. You don’t have to manage the portfolio yourself, since each target date fund is a group of mutual funds combined into one fund that serves as a single diversified investment.

Experienced investment professionals adjust the fund’s holdings over time as the fund approaches its target date. All target date funds reduce the amount of equity over time. Target date funds emphasize growth when retirement is years away and become increasingly income-oriented as the target date approaches. Review target date fund pros and cons to see if this type of investment might work for you.

Potential Benefits

  • Target date funds simplify the process of choosing and managing your retirement investments.
  • They’re designed to be the only retirement investment you need because each fund contains a diverse mix of investments that changes over time.
  • Getting started is easy because you simply choose a fund that’s closest to the year you plan to retire and begin taking withdrawals.

Potential Risks

  • Each target date fund is composed of a mix of investments and is subject to the risks and returns of the underlying assets.
  • Although the target date funds are managed for investors on a projected retirement date time frame, the funds’ allocation approach does not guarantee that investors’ retirement goals will be met.
  • In addition, contributions to the fund may not be adequate to reach your retirement goals.

Reasons to Consider

  • Target date funds are a convenient choice for investors who don’t feel comfortable or don’t have the time to put together their own investment mix. Each fund is made up of a broad range of investments, which can help reduce volatility when saving for retirement.
  • Investment professionals adjust the investment mix to become more conservative as the target retirement date approaches, which can help provide a measure of protection from market declines. In addition, investors may want to look for an actively managed target date series that continues to manage the funds into retirement.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.