TDF (Target Date Fund)
TDF's are 401k investment funds that allocate investments among various asset classes and automatically shift to lower-risk, income-producing investments as a "target" retirement date approaches. TDFs generally shift investment allocations from equity investments to fixed income and money market investments as the "target" retirement date approaches. This shift in TDF asset allocation is commonly referred to as the fund’s "glide path." Sometimes TDFs have significant equity exposures at the retirement date and even at the endpoint of the glide path.
Example: A TDF could be designed for workers expecting to retire many years in the future and would typically have a much greater allocation to equities and a lesser allocation to fixed-income investments. Conversely, a fund designed for workers nearing retirement age would tend to have a greater allocation to fixed-income investments. TDFs thus offer participants a potentially beneficial long-term asset allocation strategy while lowering risks as the participant approaches retirement age.
According to GAO, 401k plans with automatic enrollment policies overwhelmingly adopted TDFs as a default investment - the investment used if the participant makes no other explicit investment choice.
While TDFs may help ensure that workers have a more age-appropriate mix of investments, some experts have stated that TDFs may pose certain challenges, as recent events in the financial markets have illustrated. For example, as a result of the 2008 stock market decline, some TDFs designed for those expecting to retire in or around 2010 lost 25 percent or more in value.
