What is a target date fund?

A target date fund is designed to simplify retirement investing by automatically adjusting its asset allocation based on a specific target retirement date. As investors approach this date, the fund gradually shifts its investment strategy from growth-oriented assets, which may involve a higher risk, to more conservative investments, such as bonds or cash equivalents. This gradual shift is intended to reduce risk as the target date approaches, thus providing investors with a balanced approach to saving for retirement without the need for them to actively manage their investments.

The focus on a target date means that investors can choose a fund that aligns with their anticipated retirement timeline, giving them a tailored investment strategy that adjusts over time to meet their changing risk tolerance and financial goals. This detour from managing individual asset allocations helps investors who may not have the time or expertise to adjust their portfolios regularly.

In contrast, the other options refer to concepts that do not align with the unique characteristics of a target date fund. For instance, bonds with fixed maturity dates focus on lending and yield, foreign investments prioritize geographic diversification, and savings accounts are based on fixed interest rates without investment components. Therefore, the defining features of a target date fund make it a unique offering in investment management tailored specifically to retirement planning.