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Investing Review: Target-Date Funds

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GRIT
21 Jun

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Target-date funds are a popular investment option designed to simplify long-term investing. Imagine having a financial advisor who adjusts your investment portfolio as you approach retirement or other financial goals—target-date funds do just that, but automatically. 

These funds are structured to become more conservative over time, shifting from riskier investments like stocks to more stable ones like bonds as the target date approaches.

For example, if you plan to retire in 2040, you might choose a target-date fund labeled "2040." Initially, this fund would have a higher allocation to stocks to maximize growth potential while you have a longer investment horizon. 

As the years go by and 2040 approaches, the fund automatically rebalances its portfolio, gradually reducing its stock holdings in favor of bonds and other lower-risk investments. This process, known as the "glide path," helps reduce volatility and preserve capital as you near retirement.

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