How to choose a target-date fund: active vs mechanical are two different animals

Target-date funds have grown popular in recent years. As the name suggests, managers adjust the equity-bond mix according to a target retirement date (say 2040) — the portfolio grows more conservative as retirement approaches. They’re designed for convenience: no constant rebalancing by the investor. But target-date funds come in different breeds.

What kinds are there?

Two main types: actively managed and mechanical “alternative” target-date funds. Active ones let managers flex the mix with market conditions; mechanical ones follow a preset “glide path”, trimming equities and adding bonds on autopilot. Mechanical funds are simpler but inflexible.

What should you check before choosing?

First, the glide-path design; second, the manager’s strategy; third, the fees. Glide paths differ widely — some still hold lots of equities at the target date, others are already very conservative. Make sure the allocation strategy matches your risk tolerance.

Are target-date funds right for MPF members?

They suit “set-and-forget” members — but not “never look” ones. They’re ideal if you lack the time or inclination to rebalance constantly, but you should still review performance and fees periodically to keep the fund aligned with your retirement goals.

To compare mixed-asset funds’ performance and fees, visit MPF fund comparison.