Question of the Week: What are target-date mutual funds?

As a continuation of our series looking the different types of mutual funds, we’ve been asked about target-date funds.

Target-date funds are like putting your investing on auto-pilot. They are structured to optimally grow assets for a specific time period. They are investing toward a ‘target date’ and rebalancing the investments in the fund to optimize risk and return during the period. For example, the target date could be retirement, or if investing for post-secondary education it could be the start of school. As the examples show, target-date funds are long-term investments.

In a target-date fund the asset allocation of the fund is typically shifted to a more conservative investment mix to minimize risk as the target date draws closer. The fund manager uses the predetermined time horizon of the fund, the target date, to manage the risk of the fund.

The Nova Scotia Securities Commission does not provide investment advice. We are not advising or recommending that investors purchase the mutual funds in our posts. The posts are simply to educate investors so they can be an informed investor when making investment decisions.