What are Target Date Funds And Which Are the Best Ones for You in 2022

Target date funds are some of the most popular kinds of retirement funds available today. These funds are generally used with 401(k) plans and other employer-sponsored retirement plans. With the increasing popularity of target date funds, a lot of people have started looking towards them as a retirement savings corpus builder tool. A lot of people have started considering target date funds to fulfil their retirement goals. In case you are thinking about using target date funds for your retirement, this article is just for you. We will go through the basics of target date funds and let you know about how they work, how you can choose them and which are some of the best ones currently available. Let’s get started.

Target Date Funds: All You Need to Know

What Are Target Date Funds?

Target date funds are also known as lifecycle funds, dynamic risk, and age based funds. Generally, target date funds are mutual funds that invest in an asset mix of stocks, bonds and other investments. Compared to other balanced funds, the asset allocation in target date funds shifts over time. The shift usually happens in a way that is suited to the investors retiring on a certain “target date”.

Are Target Date Funds Good For You?

They will be good for you in case you look for the following in your investment portfolio:


It’s not uncommon to be confused about how to transition one’s asset allocation over time so that it is ready for retirement as the target date gets closer. Target date funds simplify the investment process so investors don’t have to do any research or other investment management. Some investors do not have the desire or the time to learn how to build a portfolio of mutual funds for retirement.

Automated investing

By setting an appropriate asset allocation for a stated retirement date, and by slowly reducing stocks and increasing bonds over time, the target date retirement fund does all of the asset allocation and investment selection for you.


Target date funds are often comprised of a diverse selection of mutual funds, making one diversified portfolio in just one fund.

One-fund solution

Target date funds can be considered an all-in-one retirement planning solution. If not for any other reason, the most ideal candidate for target date retirement funds is the investor who has most or all of their retirement savings in one account, such as a 401(k) or IRA.

Although target date funds have many benefits, You should also keep your portfolio in mind before investing in target date funds. What works for one person, doesn’t necessarily work for someone else.  For example, an asset allocation of 80% stocks and 20% bonds may be appropriate for someone retiring in 30 years, it may not be appropriate for an investor with low tolerance for risk. Target date funds can’t be used with a “one-size-fits-all” portfolio structure. Even though that’s how most fund managers do it. However, you should keep your own status in mind before investing in them. When choosing the most appropriate investments, there are many variables to consider, such as life expectancy and risk tolerance. You should also be mindful about the funds you already have in your portfolio.

Which are the Best Target Date Funds

Just like other mutual funds, the best target date funds also consist of a combination of below-average expense ratios, broadly-diversified portfolios and average to above-average long-term performance. Based on all of that, here are the best target date fund families for you to choose from:

Vanguard Target Retirement Funds 

Vanguard Target Retirement Funds give you a straightforward approach to a sophisticated problem: how to invest successfully for retirement. Each fund is designed to help manage risk while trying to grow your retirement savings. Vanguard Target Retirement Funds reduce risk through broader diversification. Each of the Target Retirement Funds invests in Vanguard’s broadest index funds, giving you access to thousands of U.S. and international stocks and bonds, including exposure to the major market sectors and segments. The asset mix is professionally managed. The funds’ managers gradually shift each fund’s asset allocation to fewer stocks and more bonds so the fund becomes more conservative the closer you get to retirement. These funds also come with automatic rebalancing. The managers then maintain the current target mix, freeing you from the hassle of ongoing rebalancing. These funds also come with low costs. The average Vanguard Target Retirement fund expense ratio is 83% less than the industry average.

Fidelity Freedom Funds

Fidelity Freedom Funds, also called target date funds, can help you grow your savings to help you live the life you want in retirement. You can choose the fund that best represents your anticipated year of retirement. Each Freedom Fund is a single fund solution that includes a mix of equities, bonds, and short-term assets. Invest with the security of knowing your portfolio is managed by Fidelity. The “target date” of a target date fund is the anticipated year of retirement. All of Fidelity Freedom Funds have a year in their name. You can choose a Fidelity Freedom Fund based on the year you expect to retire. You don’t need to adjust your asset allocation over time because Fidelity Freedom Funds become more conservative the closer you get to retirement.

T. Rowe Price Target Date Funds

The Target Funds’ emphasize asset accumulation prior to retirement, balance the need for reduced market risk and income as retirement approaches, and focus on supporting an income stream over a moderate post retirement withdrawal horizon. The target date funds are not designed for a lump-sum redemption at the target date and do not guarantee a particular level of income. The key difference between the Retirement Funds and the Target Funds is the overall allocation to equity; although they each maintain significant allocations to equities both prior to and after the target date, the Retirement Funds maintain a higher allocation, which can result in greater volatility over shorter time horizons.

Best Target Date Funds: Conclusion

Target date funds are generally good choices when it comes to retirement benefits. Some of their best features are simplicity, diversification, and automated shifting of allocation over time. However, investing in target date funds should depend on your personal status as well. What works for someone else, might not work for you. Use the info in this post to get you started on the research journey towards learning  more about target date funds. Make sure you research about how each fund works before you put your hard earned money in it. Your retirement corpus is a very important aspect of your life and can affect your future in a massive way. Take your time with target date funds, research thoroughly and only then invest in them. There are a whole lot of options available for you, so finding the right fund shouldn’t be that difficult.

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