401(k) target-date funds (TDFs) are designed to automatically move from higher-risk, higher-return investments (stocks) to lower-risk, lower-return investments (bonds) over time and with the approach of a “target” retirement date.
This slow shift from stocks to bonds typically occurs over decades and is called a glide path. Target-date funds are not risk-free, and the investments are not guaranteed.
Typically structured as a mutual fund, a TDF’s investments are determined by its objectives and disclosed in the fund’s prospectus.
A target-date fund may be designed as a “to” or “through” retirement investment. According to the Financial Industry Regulatory Authority (FINRA), a “to retirement” target-date fund will reach its most conservative asset allocation on the date of the fund’s name. A target-date fund designed to take an investor “through retirement” continues to rebalance and generally will reach its most conservative asset allocation after the target date.