Choosing how to save for retirement can feel overwhelming given the many investment choices available. For investors who prefer a simpler, hands-off approach, target-date funds provide a streamlined solution. These investment products let you pick a year close to when you expect to retire, then rely on professional managers to adjust your asset mix over time.
A target-date mutual fund or exchange-traded fund (ETF) functions as a single, diversified vehicle designed around a retirement year—labels such as “2030 Target-Date Fund,” “2040 Target-Date Fund,” or “2055 Target-Date Fund” indicate the approximate year the fund targets. After you buy the fund that corresponds to your planned retirement date, the manager oversees allocation, rebalancing and risk management so you can focus on saving consistently.
What is a target-date fund?
Target-date funds are built with an asset mix that reflects the remaining time until the target year. Funds with distant target dates—2050, 2055 or 2060—are typically aimed at younger investors and normally hold a larger share of equities to seek long-term growth. Those closer to retirement shift toward income-focused assets like bonds to preserve capital and reduce volatility as the target year approaches.
Over time, target-date funds follow a planned “glide path” that gradually adjusts the allocation from growth-oriented investments to more conservative ones. Most are structured as funds of funds, meaning they invest in other mutual funds or ETFs that represent different asset classes rather than selecting individual stocks or bonds directly. This structure helps smaller investors achieve broader diversification without managing each component themselves.
The fund-of-funds approach simplifies portfolio construction and reduces single-security risk, but it can also mean an extra layer of fees. That trade-off—convenience and professional management versus potentially higher costs—is an important consideration when evaluating target-date options.
Are target-date funds good investments?
In general, target-date funds are a solid choice for many investors. Myron Genyk, CEO and co-founder of Toronto-based Evermore Capital Inc., explains that target-date funds were first developed in the United States in the 1990s to offer retirement-focused portfolios to people who otherwise used basic savings accounts. “What better thing than a fund created specifically for retirement investment,” Genyk says. “Saving is only half the equation… your money needs to grow and compound over time.”
Target-date funds are widely used in workplace plans: they’re a leading choice for members of defined contribution pensions and serve as the default investment in many employer-sponsored retirement plans in North America. However, selecting the right fund still requires attention to details such as asset mix, fees and the manager’s methodology.
How to choose a target-date fund
Colin Ripsman, president of Elegant Investment Solutions Inc., notes that the composition of a fund’s asset mix is among the most important factors. While all target-date funds include cash, equities and fixed income, some funds add specialized exposures—small-cap stocks, long-duration bonds or real estate—that can improve returns or reduce risk compared with a basic allocation.
It also matters whether a manager follows a “best-in-class” approach when selecting underlying funds. Large financial firms sometimes build target-date products from in-house funds only, while other managers may pick top-performing funds regardless of their provider. Either approach can be effective; the key is to understand the manager’s selection process and whether it aligns with your goals.
Evaluating a fund’s glide path is equally important: look for a timeline and asset allocation that match your personal risk tolerance and retirement timeline. The glide path determines how quickly the portfolio becomes more conservative as the target date nears.
Are there cons to investing in target-date funds?
Target-date funds are not ideal for everyone. Investors who want to actively manage holdings or attempt to outperform the market may find target-date funds too restrictive because they follow a steady, predetermined glide path rather than responding to short-term market opportunities.
A common criticism is fees. Because target-date funds are often funds of funds, underlying costs can add up. An investor could theoretically replicate the allocation by buying the underlying index funds or ETFs directly and avoid the additional layer of management fees. But doing so requires time, discipline and knowledge to handle asset allocation, security selection, rebalancing and diversification—tasks many savers prefer to outsource.
There are, however, lower-cost target-date choices. For example, Evermore Capital launched a line of target-date funds constructed from low-cost ETFs in early 2022, offering target dates from 2025 to 2060 with a management fee of 0.35% and total costs well under 1% after including underlying ETF expenses. Cost-conscious investors should compare both management fees and total expense ratios when evaluating options.
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