Target-date fund.

In plain English

A target-date fund (TDF) is a hands-off retirement investment. You pick the fund whose name matches your approximate retirement year (e.g., 'Target Retirement 2055') and the fund handles the rest. Early on, it holds mostly stocks for growth. As the target year approaches, it gradually shifts toward more bonds and cash for stability. After the target year, it usually keeps shifting more conservative for several more years. TDFs are the default investment in many 401(k) plans.

01Why it matters

Target-date funds solve the two hardest problems of investing for the average person: choosing an appropriate asset allocation and rebalancing it over time. For someone who doesn't want to think about it, a low-cost TDF is often a perfectly reasonable choice. The main thing to watch is the expense ratio. TDFs from low-cost providers run 0.10-0.15%; from higher-cost providers they can run 0.50%+, which adds up over decades.

02The math, step by step

A 30-year-old picks 'Target Retirement 2060' inside their 401(k). Today, the fund might be roughly 90% stocks / 10% bonds. In 20 years, it might be 80/20. By 2060, perhaps 50/50. Five years past the target date, around 40/60. The investor never has to log in and rebalance, the fund does it automatically.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT