What is in a target date fund? A number of companies offer “target date retirement funds,” sometimes referred to as “target date funds” or “lifecycle funds.” Target date funds, which are often mutual funds, hold a mix of stocks, bonds, and other investments. Over time, the mix gradually shifts according to the fund's investment strategy.
What happens to a target date fund?
Nothing special happens with a Target Retirement Fund when it reaches its target date. The fund doesn't stop investing, and you don't need to take your money out of the fund. The gradual move from stocks to bonds simply continues.
What are the benefits of investing in a target date fund?
Advantages of Target-Date Funds
Is a target date fund actively managed?
Most target date funds are actively managed, to a degree, meaning their holdings change over time. This means you could face unintended tax consequences if you choose a taxable brokerage account rather than a tax-advantaged 401(k) or IRA.
Are all target date funds mutual funds?
Typically, target-date funds include a mix of stock funds and bond funds. These can be either actively managed mutual funds or index funds (and there are also target funds in the form of collective investment trusts—low-cost investment vehicles that use strategies similar to mutual funds).
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How do I purchase target date funds?
To invest in a target-date fund, investors typically choose the fund with the name closest to the date they plan to retire. An investor who is age 30 and wishes to retire at age 65 might choose a target-date fund with a date close to 35 years in the future.
Are Target Date Funds tax efficient?
Target-date funds tend to be more tax efficient, in general, because they often use index funds to achieve their target allocations. Since many target-date funds own international stocks and bonds as part of their portfolio, the foreign tax credit may come into play.
Do you need to rebalance a target date fund?
A Target Retirement Fund will—automatically—rebalance over time via its glide path. An investment in the Target Retirement Fund is not guaranteed at any time, including on or after the target date. Investments in bond funds are subject to interest rate, credit, and inflation risk.
What is the difference between a target date fund and a target date index fund?
Index funds offer more choices and lower costs, while a target-date fund is an easy way to invest for retirement without worrying about asset allocations. Index funds include passively-managed exchange-traded funds (ETFs) and mutual funds that track specific indexes.
What is better than a target date fund?
Index funds outperform most actively managed target-date funds. They are good for investors who are risk-averse and have a long time horizon. Target-date funds may be tax-advantaged, however, since they are approved for inclusion in 401(k)s. However, they require an investor to stick with one fund family.
Is Target fund an index fund?
Target date index funds are an investment strategy based on the target date, which is the year when you want to access your money and retire. A target date index fund is actively managed to alter the fund's risk allocation as the target date approaches.
Does TD Ameritrade have target date funds?
Recently TD Ameritrade created a target-date family with five products under the name TDAX Independence Exchange Traded Funds. The concept is straightforward: An investor buys the fund that comes closest to maturing at his intended retirement date.
What is a 401k target date fund?
A target-date fund is a diversified investment mix based on your age and the year you expect to retire. As you get closer to the target retirement date, the fund automatically gets more conservative, shifting away from stocks and more heavily into bonds. Target-date funds are usually a fund of funds.