What is a target-date fund?

A target-date fund is specifically designed to serve investors by automatically adjusting its asset allocation as it approaches a specific target date, typically the year in which the investor plans to retire. This type of fund starts with a more aggressive investment strategy, often including a higher proportion of stocks to maximize growth potential. As the target date nears, the fund progressively shifts toward a more conservative allocation, increasing its holdings in bonds and cash equivalents to reduce risk and stabilize the investment's value.

This management approach is particularly advantageous for individuals who prefer a hands-off investment strategy, allowing them to invest for retirement without needing to constantly monitor and adjust their asset allocation as their time horizon changes. The goal is to provide a diversified portfolio that aligns with the investor's risk tolerance and investment timeline, thus making it a suitable option for retirement savings.