Target date fund

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Target Date Fund

A fund of funds that invests predominantly or exclusively in mutual funds with a certain maturity. For example, a target date fund may hold funds with securities that all mature in 2015. A target date fund is useful when one wishes to have all of one's investments mature on the date of one's retirement.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

Target date fund.

A target date fund is a fund of funds that allows you to link your investment portfolio to a particular time horizon, typically your expected retirement date.

In fact, a target date fund characteristically has a date in its name, such as a 2015 Fund or a 2030 Fund.

A target fund aiming at a date in the somewhat distant future tends to have a fairly aggressive asset allocation, with a focus on growth. As the target date approaches, the fund is designed to become more conservative to preserve the assets that have accumulated and eventually to provide income.

Each fund company formulates its own approach to risk, so that the allocation of one 2025 Fund may be noticeably different from the allocation of a 2025 Fund from a different company.

You can find model portfolios and statements of investment strategy in the fund's prospectus. Each mutual fund company that offers target date funds tends to offer a series, with dates five or ten years apart.

Most companies populate their funds of funds with individual funds from their fund family, though some companies add mutual funds or exchange traded funds from other investment companies.

Like other funds of funds, the fees you pay for a target date fund may be higher than you would pay to own each of the individual funds separately. However, these fees pay for an additional level of professional oversight.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
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Scott Skidmore, director of advisory services for Kelly Advisory, has seen a move in plans to include Target Date Funds, which are "set up as a set-it-and-forget-it fund that get more conservative as you get older, so employees don't need to think about the right asset allocation for themselves."
The Wells Fargo Plan offered more than two dozen investment options, 12 of which were Wells Fargo Dow Jones Target Date Funds (TDFs).
Ralph Ferraro, senior vice president, head of Product for the company's Retirement Plan Services business, said, "Unlike standard target date funds driven by retirement age, Lincoln Financial's YourPathsm portfolios are a more customized solution.
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Based on this analogy, one can see why target date funds have grown in popularity, particularly in 401(k) plans.
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David A Solomon, national sales manager for Defined Contribution Investment Only at GSAM, said, 'Consultants, advisors and plan sponsors are re-examining their process for evaluating target date funds following guidance from the Department of Labour.
The average 401(k) plan offers twenty-five investment choices, including thirteen stock funds, three bond funds, six target date funds, and one money-market/stable value fund.
"Don't get me wrong--I like target date funds for their diversification and risk control capabilities," says Surz.
Target date funds offer a predetermined asset allocation that gradually becomes less aggressive and more conservative, as its target date approaches.