A Target-Date Fund (TDF), also known as a lifecycle, dynamic-risk or age-based fund, is a type of mutual fund or exchange-traded fund (ETF) designed to automatically adjust its asset allocation mix according to a selected time frame that is appropriate for a particular investor. This time frame is usually associated with the investor’s expected retirement date.
In the 401(k) industry, a TDF offers participants the convenience of a diversified portfolio in a single fund. As the “target date” approaches—typically the expected retirement year—the fund’s allocation gradually shifts. It starts with a higher concentration in riskier assets like stocks to achieve growth and gradually moves towards more conservative assets like bonds to preserve capital. The idea is to balance risk and reward according to the time remaining before retirement, making it a “set it and forget it” investment strategy for retirement savings.