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4 Questions to Ask Before Investing in a Target-Date Fund for Retirement

These set-it-and-forget it funds and similar 401(k) options can make investing simple, but you need to know how to size them up

By Ann C. Logue

What's the fund’s glide path? A target-date fund’s “glide path” is the way the fund manager will change the mix of assets as its target date looms closer. For instance, a fund managed for a target 40 years into the future might start out mostly in stocks, then shift more heavily into conservative bonds as 2052 nears to help avoid the chance of a loss when investors need the money. Some target-date fund managers take more risk in the stock market early on, while others take more risk in later years. What’s right for you depends on your comfort level.


Does my 401(k) offer a balanced fund that's rated higher than the target-date fund? Morningstar's Charlson says that while target-date funds may be a good idea for many investors, not all target-date funds are good ones. If you are looking for a target-date fund on your own, not for your 401(k), compare funds from different companies for their performance, fees and glide paths. If your 401(k) plan has only one target-date option, Charlson suggests going to and comparing the Morningstar rating for the target-date mutual fund from the same investment firm and a balanced fund from the investment firm offering a balanced fund in your 401(k). (A balanced fund is a mutual fund that holds stocks and bonds.) If the balanced fund is rated higher than the target-date fund, it may make sense to stick with a balanced fund in your 401(k) and skip the target-date option.

Ann C. Logue is the author of books including Emerging Markets for Dummies and has written for Next Avenue, Barron's and Entrepreneur. Read More
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