Investing doesn’t have to be difficult, and target-date funds are great for easy, low-maintenance investing. But you should still know what you’re getting into. One target date fund feature you want to pay attention to is its “glide path.”
A glide path is basically how the assets of a fund change as the target date approaches. In general, the fund moves toward a more conservative allocation as you approach that date. After all, it assumes you’re probably going to take the money out soon. So safe, conservative investments make sense. But depending on your goals, you might want a different glide path for your fund. U.S. News explains:
Some funds are designed to be nearly all cash once they hit the target date, and those types of funds are called “to retirement.” They focus more on keeping your investments stable, since one of their main goals is to minimize the potential for loss of principal as of the end-date. The other kind of target-date funds are known as “through retirement,” and are built for investors who want their money to stay in the market after you reach the target date. Being retired doesn’t mean you don’t need to continue to grow your assets, right? The advantage with this type is that it lowers the chance that you’ll outlive the amount of money you have, which is known as “longevity risk.”
Again, it depends on what your financial goals are as you approach retirement age. But the bottom line is: before you commit to a target date fund, know what happens to your assets as you near the date. Check out the full post for more detail.
3 Questions to Ask Before Choosing Target Date Funds | U.S. News & World Report
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