Video Reports

Embed this video

Copy Code

Link to this video

Get LinkEmbedLicenseRecommend (-)Print
Bookmark and Share

By Adam Zoll and Josh Charlson, CFA | 01-24-2014 11:00 AM

Is a Target-Date Fund Right for You?

Target-date funds can be well-suited to investors who lack the time or desire for more hands-on portfolio management, but they still need to so some homework first, says Morningstar senior fund analyst Josh Charlson.

Adam Zoll: For Morningstar, I'm Adam Zoll.

Target-date funds have gained lots of attention as a retirement savings vehicle, but are they right for you?

Here to talk about this question is Josh Charlson, a senior fund analyst with Morningstar who specializes in funds of funds.

Josh, thanks for being here.

Josh Charlson: Happy to be here.

Zoll: First, let's talk about what we mean when we say a target-date fund. How do target-date funds work, and what purpose do they serve?

Charlson: The basic principle of a target-date fund is that it's a very diversified portfolio combining a lot of asset classes, usually a lot of underlying funds, and it's going to manage the allocation for the investor [to those asset classes] over time.

Each year there is a gradual roll down of the equity [allocation], so over time as the investor ages, you are going to get more in bonds, less in stocks--sort of adjusting that risk profile appropriately.

Zoll: We often use the term target-date "series" because we are talking about a series of funds based on the investor's expected retirement age.

Charlson: Right. You are going to choose a fund has the date that's close to your expected retirement date, and then you are going to get that allocation managed for you. Along the series, there is a bunch of funds with different dates, usually in five-year increments, and there is what we call a glide path, and that's really the shifting of the asset allocation over time.

Zoll: The target-date fund is sort of an all-in-one investment, right? What sort of investor is this ideally suited for?

Read Full Transcript

{0}-{1} of {2} Comments
{0}-{1} of {2} Comment
  • This post has been reported.
  • Comment removed for violation of Terms of Use ({0})
    Please create a username to comment on this article