Holding a target date retirement fund also helps investors avoid paying multiple management expense ratios, broker fees or online trading fees.
Generally, people's risk tolerance decreases as they move toward retirement.
Managers rebalance TDFs as they approach maturity (and the fund-holders' projected retirement date) by reducing the proportion of higher risk equity investments – and increasing that of lower risk income investments – within the fund.
Take note: If the thought of stock market volatility makes you nauseous while others your age merely shrug it off (or if a new tech offering thrills you, while your friends prefer to discuss bond yields), you may not be a good fit for a target date fund. You don't expect your financial plans and goals to change.
If you're the type of person who successfully sets long-term goals and meets them without making many changes, you may be a good candidate.
Since the asset allocation of target date retirement funds becomes more conservative as time goes by, they work best for long-term investors who don’t plan to withdraw the funds prior to their planned target date, and whose lives are likely to be stable.