The Pros and Cons of Target Date Mutual Funds

Would it surprise you to learn that 50.3% of U.S. adults 55 and older have left the labor force because of retirement? It might not surprise you to learn that 66.9% of 65- to 74-year-olds were retired.

As a working adult, you spend years planning for the time when you’ll hit the eject button on your career and join the wonderful world of retirement. 

Do you have an age in mind when you hope to retire? As you work to manage wealth and prepare for the retirement years, it’s an important question to consider. 

Target-date mutual funds are a retirement investment option that asks you to earmark your retirement year. It’s an interesting idea for retirement investing. 

Wondering how target-date mutual funds work and whether they’re a smart option for you? Read on to learn more. 

What Are Target-Date Mutual Funds?

A target-date mutual fund is a type of mutual fund that is specifically designed for retirement planning.

Often those planning for retirement hear the wealth management strategy to lower their investment risk as they near the retirement age. Often what’s recommended is to move away from stocks towards bonds as that age nears. 

In a regular mutual fund, that would mean you would need to monitor your investment portfolio and make those adjustments manually. 

A target-date mutual fund is actually set up to make the necessary adjustments for you. It’s set up to invest over time and plan for the prenamed retirement date.

How Does a Target-Date Mutual Fund Work?

Target-date mutual funds are set up to invest in a combination of stocks, bonds, and sometimes even cash. 

Early in the life of the mutual fund, the managers will invest more of your money into the stocks, which tend to be riskier.

As you get closer to your retirement age, the fund manager will automatically adjust to less risky and volatile investments on your behalf. 

As an investor planning for retirement, this makes it easy for you. You simply put the money in and give an expected retirement date. The target-date mutual fund manager adjusts the investment over time for you.

Role of Asset Allocation

Wealth managers will often talk to their clients planning for retirement about diversifying their assets to avoid too much risk from any one investment. 

Asset allocation is how an investor diversifies their investments

So, how does asset allocation matter for target-date mutual funds? Asset allocation is the choice of where you’re investing your money at any given time. 

With a target-date mutual fund, the asset allocation changes over time as the investor gets closer to the target date for retirement to reduce their risk in the investment. 

Advantages of Target-Date Mutual Funds

With any type of investment, there are pros and cons. Target-date mutual funds are no exception. Let’s take a closer look at some of the advantages of this type of retirement investment option.


Many people get intimidated and even reluctant when it comes to investing because it can feel overwhelming and complicated. 

A target-date mutual fund is a very simple retirement investment option. You choose the actual target-date mutual fund, start investing, name an expected retirement date, and you’re done. 

You can keep investing in the fund over time. The mutual fund manager handles the rest for you.


Basic investor knowledge tells you to make sure you reduce your risk by diversifying. The asset allocation that automatically happens for you in a target-date mutual fund can save you the hassles and you know you’re safely diversified. 

A target-date mutual fund actually invests in shares in index funds that hold shares in hundreds or thousands of businesses. This allows the fund manager to keep money diversified and have access to move the funds as needed over time. 


Target-date mutual funds have caught on in popularity in recent years. Some companies even have them as an option with their 401ks. 

Other major investment houses have their own line of target-date funds. 

The options for investors interested in this type of retirement investing have greatly increased in recent years.


The importance of risk should always be a consideration when investing. As a younger investor, you can take the chance with more risky investments. You have time on your side. 

As you get older though, you want to decrease that risk. 

The beauty of the target-date mutual fund is that it adapts for you automatically. 

Target-Date Mutual Fund Drawbacks

With any investment option, there are many things to consider. You should be aware of a few potential pitfalls related to target-date funds too. 


The advantage to a target-date mutual fund is that there’s a manager handling the asset allocation. It’s their role to manage the fund for you. 

When you have them take over that management though you do lose some control over the investment. Some people appreciate the idea of putting the money in and having someone else handle things. 

But if you’re a control freak, it’s something to consider.

The target-date mutual funds take some of your flexibility and control over the investment once you put your money into it. If you wanted to change your investment strategy, you’d have to sell from the target-date fund and buy into another option.


All mutual funds charge a management fee. Typically, you’ll pay a percentage based on your investment value. This is commonly referred to as the expense ratio. 

With any investment and fees, you want to consider if the fees will end up outweighing the potential growth from the investment. 

Finding the Best Investments for Your Retirement Plan

Target-date mutual funds are an interesting option for less risky retirement planning. They don’t require your hands-on management and you get the knowledge of a fund manager handling your asset allocation over time. 

Do you need help with customized financial planning for your retirement investing? It’s our pleasure at Bogart Wealth to help people plan their financial future. Contact us today to get started. 

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