What is a target date fund?

• A. A fund with a fixed allocation that does not change
• B. A fund that automatically shifts asset allocation toward more conservative investments as retirement date approaches
• C. A fund that invests only in cash
• D. A fund that focuses on high-growth small-cap stocks

Answer: (B)

A target date fund uses a glide path to align risk with your retirement timeline. It starts with a relatively higher allocation to stocks for growth, and automatically shifts toward more conservative investments like bonds and cash as the target retirement date nears. This rebalancing happens on a pre-set schedule, so the fund gradually reduces volatility as you approach and enter retirement.

This is different from a fund with a fixed allocation that never changes, a cash-only fund, or a fund concentrating on high-growth small-cap stocks. The target date fund’s automatic shift toward fixed income as the date approaches is what defines it.