What is a target-date fund?

A target-date fund is designed specifically to meet the retirement or investment goals of investors based on a particular time frame, typically aligning with the anticipated retirement date. This investment vehicle automatically adjusts its asset allocation over time, gradually shifting from a higher concentration of equities, which are generally riskier and have the potential for higher returns, to a greater proportion of fixed-income securities, which are typically considered safer and provide more stability as the target date approaches. This reallocation process is intended to reduce risk as the investor gets closer to their retirement or financial goal, making the fund suitable for individuals who prefer a hands-off investment strategy that aligns with their long-term objectives.

Other options describe types of investments but do not encompass the key features of a target-date fund. For instance, focusing on high-risk stocks might appeal to aggressive investors, but it doesn’t correlate with the strategic reallocation process of a target-date fund. Similarly, fixed-income securities that mature on a specific date or funds exclusively investing in government securities do not represent the diversification and dynamic asset management characteristic of target-date funds.