Target-Date Fund (TDF)

A target-date fund carries a year in its name — 2045, 2055 — meant to approximate when you will start withdrawing. Inside, it is a fund of funds: it owns underlying US stock, international stock, and bond funds in set proportions, and rebalances them for you.

The allocation follows a published glide path. A fund thirty years from its date might hold 90% stocks; the same fund at its target date might hold 45%. That shift happens automatically, which is the entire product — it removes the two tasks most investors either forget or do badly, rebalancing and de-risking with age.

Two funds sharing a year can differ substantially, and the reason is usually the glide path's design. A "to" fund reaches its most conservative allocation on the target date and stops; a "through" fund keeps reducing equity for decades afterward, on the reasoning that retirement lasts thirty years and the money must keep growing. Equity at the target date ranges from roughly 30% to over 50% across major providers, so the year is not the whole specification.

Cost varies more than the strategy does. Index-based target-date funds charge under 0.15% while some actively managed ones charge above 0.60%, and over a working life that gap compounds into a meaningful share of the balance. Because these are the default investment in most 401(k) plans, the fund you hold is often the one your employer chose rather than one you selected.

The most common mistake is treating a target-date fund as one holding among several. It is already a complete portfolio, so pairing it with an S&P 500 fund "for growth" silently overweights large US stocks and undoes the allocation the glide path was maintaining. Held alone, it works; held alongside, it needs the same attention as any other mix.