Target-Date Mutual Funds
Because target-date funds are one of the three approved default options for many retirement plans, their popularity is likely to increase. Target-date funds usually have an aggressive equity exposure for young investors and become increasingly conservative as the workers approach retirement. This shift is commonly referred to as a fund’s “glide path.” In this chapter, target-date funds are described, research is reviewed, and the theoretical basis for their design is examined. Evidence of the performance of target-date funds during retirement years is provided, guidelines for their selection are given, and suggestions for future research are made.
Target-date funds are a relatively new phenomenon, with discoveries and improvements still ongoing. Future research will attempt to further incorporate finance theories in ways that will undoubtedly improve them. This chapter, however, is focused only on the current state of target-date funds and on how purchasers of such funds can form strategies to obtain desirable results.
KeywordsHuman Capital Mutual Fund Optimal Portfolio Fund Manager Asset Allocation
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