Target-Date Funds: Simplifying Your Asset Allocation Strategy
Target-date funds provide investors with the ability to simplify their financial and investment lives. With target-date funds, your portfolio's asset allocation is automatically rebalanced on your behalf over the years by professional investment managers, generally growing more conservative as the identified target date approaches. How important is asset allocation? One landmark study determined that it may potentially have a greater effect on your portfolio's performance than the specific investments you choose.
Unlike lifestyle funds, target-date funds do not require investors to reassess their priorities and transfer money to a different fund as goals approach and priorities change. Generally speaking, the name of each target-date fund includes a specific year, such as "2020" or "2030." All you need to do is choose a fund named for the year closest to the year of your goal. From that point on, professional investment managers make all the investment decisions.