Ask Our Expert: Target-Date Fundamentals (Part I)

Q: How can target-date funds help investors in retirement?

A: Target-date funds are a comprehensive investment strategy that aims to help investors achieve important long-term goals like retirement. For many people, a goal like retirement can seem daunting, and sometimes it’s hard to even know where to start. And that’s where the features of target-date funds can really help empower investors.

Q: How do target-date funds work?

A: The investor starts by selecting a target date that corresponds with the year they hope to retire or start withdrawing money. A team of investment professionals assembles a broadly diversified portfolio that factors in the investor’s time horizon (the amount of time the investor has until retirement).

Q: What role does diversification play in target-date funds?

A: Diversification provided by target-date funds is important. While all investments carry risks, spreading that risk across a mix of different types of investments and asset classes can potentially help mitigate risk by reducing the effect of downturns experienced by individual types of investments at different times.

Q: Why are target-date funds popular?

The combination of features—including diversification, time horizon sensitivity and long-term planning—has made target-date funds a very popular option for those striving for a comfortable retirement. It’s important to note that target-date mutual funds do not guarantee a return or steady retirement income, and the principal value of the investment is not guaranteed at any time, including at the target date.

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Individual Investors | U.S. Investment Professionals

The target date is the approximate year when investors plan to retire or start withdrawing their money. The principal value of the investment is not guaranteed at any time, including at the target date.

A target-date fund seeks the highest total return consistent with its asset mix. Over time, the asset mix and weightings are adjusted to be more conservative. In general, as the target year approaches, the portfolio’s allocation becomes more conservative by decreasing the allocation to stocks and increasing the allocation to bonds and money market instruments.

Diversification does not assure a profit nor does it protect against loss of principal. 

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

The opinions expressed are those of our investment professionals, and are no guarantee of the future performance of any American Century Investments portfolio. This information is not intended to serve as investment advice; it is for educational purposes only.