PLANNING
Target date funds
Although relatively new in the UK, target date funds are useful for longer-term
financial planning. A target date fund is an all-in-one product, designed to
make investing easy for medium- to long-term goals, such as retirement.
withdrawing your money; for example, if you would like
to buy a house in 2025, you would pick a 2025 target
date fund (you don’t have to stick to this date and can
change it later).
As a saver, all you would need to decide is the amount
you wish to invest and your target date – the date
when you expect to start taking money out of the fund.
How it works
At the beginning of your investment journey, the fund
is invested in assets with a higher risk and return
potential, such as equities, to help maximise capital
growth. As you move closer to your goal (your target
date) – which may be buying a home, saving for a
child’s university fees, or even your retirement – your
money is gradually moved into traditionally safer
assets, such as bonds, and is ready for you to withdraw
as and when you need it. The fund is structured so that
you can remove your investment at any time without
penalty, either before or after the target date.
The asset allocation within the fund is all managed for
you. Target date funds provide a simple and low-cost
solution to have your money professionally managed
without having to pay for independent financial advice.
Key points
These are all-in-one funds designed to help
make investing easy for medium- to long-term
At the beginning, the fund is invested in riskier
assets such as equities. As you move closer to
your goal, your money is gradually moved into
less risky assets
How to work out which fund to choose Choosing a
fund is simple – the funds are named by the year at
which you would expect to start withdrawing your
Funds are named after the year at which you
would expect to start withdrawing your money
Objective:
Objective:
Objective:
Maximise growth
Maximise growth with increasing stability
Protect capital with some growth
Growth
Transition
Consolidation
Stability
100
90
Asset allocation (%)
80
70
60
50
40
30
20
10
0
-45
-40
-35
-30
-25
-20
-15
-10
Years BEFORE target date
Equities
Global emerging market equities
Global developed market equities
UK equities
Alternatives
Global credit
Global property
-5
0
TARGET
DATE
Bonds
Long/medium-dated gilts
Corporate bonds
+5
+10
+15
+20
Years AFTER target date
Liquidity
Cash
Short-dated gilts
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