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Looking for an easier way to save? Find out why target-date investments have become a popular way to save for retirement in employer plans.
They can help you with investment selection
Investment mixes ready to go
It’s easy to choose an investment
Each target-date investment has a year in its name, the target date. The investment is designed for people planning to retire and leave the workforce in or around that year. To find a target-date investment that might work for you, ask yourself when you want to retire. If you’re not sure, you can ballpark it by adding 671 to your birth year. Then take a look at the target-date investment with the year closest to the total.
Target-date investments are subject to the risks of their underlying funds. The year in the investment’s name refers to the approximate year (the target date) when an investor would retire and leave the workforce. The investment will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. A target-date investment is not guaranteed at any time, including on or after the target date.
You’re not locked into one particular investment
You don’t have to choose the investment that matches your expected retirement year. Since a target-date investment is designed for a particular retirement year, not a particular person, it doesn’t account for your personal finances and tolerance for risk. So you can choose one with a later target date if you prefer a more aggressive investment mix. Or, if you prefer a more conservative mix, you can choose an investment with an earlier target date.
Also, you’re never locked into a particular target-date investment. If you’re invested in one, we encourage you to check your investment mix from time to time to make sure it’s in line with your goals and tolerance for risk, especially if your planned retirement year changes.
They can serve you over the long term
Risk decreases over time
Experts generally recommend lowering investment risk as you approach retirement. The sooner you plan to spend the money, the less time you have to recover from losses in the market.
A target-date investment takes care of this process for you. The further away it is from the target date, the more stocks it will hold, seeking the high potential growth stocks can provide. As the target date approaches, the investment gradually decreases its stock holdings and increases its bond holdings. Bonds usually have a lower risk of loss, though they also have lower potential gains.
Investment adjusts automatically
The target date is not the end
Nothing special happens when a target-date investment reaches the year in its name. With a Vanguard target-date investment, this is the year it reaches a 50-50 stock-bond mix. Over the next 7 years, it gradually becomes more conservative, shifting from stocks to bonds until it lands on a 30% stock, 70% bond mix, which may be right for most investors living in retirement.
Remember, each investment is designed to take you through retirement, which could last 30 years or more. A target-date investment will always keep a portion of its assets in stocks. While continuing to invest in stocks does come with market risk, the long-term growth potential of stocks can help your buying power keep up with inflation during a long retirement.
If your retirement plan offers Vanguard Target Retirement Income and Growth Trust, you’ll have another investment option for your savings once you retire. Simply answer 3 questions to determine which investment best aligns with your goals.
They can help simplify investing
Target-date investments are easy to choose, offer broad diversification, and automatically become more conservative over time. Although target-date investments can do a lot of the work for you, you still have an important role to play.
Diversifying means having different types of investments. It doesn’t guarantee you’ll make a profit or that you won’t lose money.
Check your investments regularly
As your risk tolerance and goals change, make sure the fund you're invested in still works best for you. Your personal situation could change—you might decide to retire earlier or later than you’d planned, for instance—and this may lead to switching to a target-date investment that invests more in stocks or more in bonds.
Remember, you’re never locked into a particular target-date investment.
If your retirement plan offers advice, turn to our pros. They can select your funds, invest your money, and help you live your best financial life.
Whenever you invest, there's a chance you could lose the money.
Bond funds are made up of IOUs, primarily from companies or governments. These funds risk losing value if the debt isn't repaid on time. Also, bond prices can drop when interest rates rise or the issuer's reputation suffers.