09/2017 KIPLINGER’S PERSONAL FINANCE 55INVESTINGISTOCKPHOTO.COM
INVESTINGto 40% of their assets in
stocks, “to” funds tend to
be more conservatively po-
sitioned at the target year
than “through” funds.
Whatever the track, most
target funds eventually
merge with a “retirement”
or “income” fund with a
stock-bond mix that stays
unchanged.
Two popular target-
date series, FIDELITY FREEDOM
and VANGUARD RETIREMENT,
follow “through” glide
paths, hitting the target
year with stock allocations
of 55% and 50%, respec-
tively. Fidelity recently in-
creased the duration of its
post-target-date glide path
from 15 years to 19 years,
effectively keeping more
in stocks for longer.
“People are living lon-
ger, so the time horizon
should be a little longer,”
says Freedom series co-
manager Andrew Dierdorf.
When a Freedom fund
reaches its final allo cation—
24% in stocks
and 76% in
bonds—it merges
with Fidelity Freedom
Income (symbol FFFAX).
Vanguard’s glide path con-
tinues for seven years after
the target year, reaching
a final mix of 30%
in stocks and 70%
in bonds. At thatTARGET-DATE FUNDS MAKE
investing for retirement
relatively easy. Choose a
fund with the year in its
name closest to the time you
plan to retire, then sit back
and let the fund’s managers
decide how much of your
savings to invest in stocks
and bonds (and occasionally
other asset classes). But
what happens when your
target-date fund hits the
target year? The answer
varies, depending on which
sponsor’s fund you own.
Target funds become
more conservative over
time, as their managers
trim a fund’s allotment to
stocks and boost the alloca-
tion to bonds and cash. And
every target fund follows its
own “glide path”—the shift
in asset mix over time.
Broadly speaking, there
are two kinds of target-date
funds. The glide path of one
group takes you “through”
the target date, continuing
to shift the asset mix over a
predetermined number of
years. Such funds typically
hit the target year with 50%
of their assets in stocks and
reach the end of their glide
paths with 30% in stocks.
“To” funds have a differ-
ent glide path. These target
funds stop adjusting asset
allocations once they reach
the target year. With 30%point, the target fund merges
with Vanguard Target Re-
tirement Income (VTINX).
T. ROWE PRICE’S RETIREMENT
and TA R G E T series don’t com-
bine with an income fund,
largely because their glide
paths keep rolling for a
whopping 30 years past
the target year. At their
end points, funds in the
Price series have 20% of
their assets in stocks and
the rest in bonds. For more
on our favorite target-date
funds, see kiplinger.com/
links/target.
What about those “to”
series, with allocations that
stop gliding at the target
year? The shifting may
cease, but the funds don’t
die. For instance, twoWhen You Hit the Target
Target-date funds employ one of two basic asset-allocation strategies once
you reach retirement age. Here’s why that matters. BY NELLIE S. HUANGMUTUAL FUNDS years after a target fund in
JPMorgan’s SmartRetire-
ment series hits its target
year, the fund merges into
a static portfolio with 33%
of assets in stocks, 50% in
bonds and the rest in cash.
If you invest through a
401(k), you’re limited to the
series that your plan offers.
But if you don’t like a fund’s
mix, choose a fund with a
different target year. Think
33% in stocks is too timid?
No sweat. Just pick a fund
with a target year further
into the future. If you think
the allocation is too aggres-
sive, choose a fund with
a target date some years
before you plan to retire.
All of this underscores
the importance of knowing
what happens with your
fund as the target year ap-
proaches, says Anne Lester,
head of retirement solutions
at JPMorgan Asset Manage-
ment. “Ask yourself if it’s
the right level of risk for you
given where you are in your
life,” she says. ■