What investment strategy should be used when approaching the target date of a target-date fund?

As the target date of a target-date fund approaches, the strategy typically shifts to a more conservative asset allocation. This is because the primary goal of such funds is to provide retirement savings that align with an investor's time horizon. Initially, when the target date is far off, the fund may invest heavily in higher-risk assets such as stocks to achieve growth. However, as the target date nears, the objective changes from growth to preservation of capital.

Shifting to a more conservative asset allocation minimizes the risk of significant losses that could impact the fund's ability to meet its goals at retirement. This adjustment often involves increasing the allocation to fixed-income securities and other lower-risk investments while reducing exposure to volatile equities, thus protecting the accumulated capital in preparation for withdrawal in retirement.

While some strategies may suggest maintaining growth or investing in cash equivalents, these would not align with the objective of ensuring capital preservation as the retirement date approaches. Therefore, adopting a more conservative approach is the prudent strategy for managing risk effectively as the target date nears.