These investment vehicles offer a diversified portfolio designed to adjust its asset allocation over time, becoming more conservative as the specified retirement date approaches. A typical portfolio starts with a higher allocation to stocks for growth potential and gradually shifts towards bonds and other fixed-income securities for capital preservation as retirement nears. For instance, a portfolio targeting a retirement date of 2050 would likely hold a greater percentage of stocks in 2024 than a portfolio targeting 2030.
Such funds offer a simplified approach to retirement planning, requiring minimal ongoing management from the investor. By automatically adjusting the asset mix, they aim to manage risk and optimize returns based on the projected time horizon. This “set it and forget it” strategy can be particularly attractive to individuals who lack the time or expertise to actively manage their investments. This approach has gained popularity as a core component of retirement savings plans, aligning with the increasing demand for straightforward, long-term investment solutions.