Fidelity Target Date Funds: How Do They Work?

Target-date funds (TDFs) are diversified investment portfolios that automatically change their asset allocation to become more conservative as you get closer to retirement. The idea is to focus more heavily on growth-oriented securities like stocks when you’re younger and theoretically have a higher risk tolerance and then switch gears to rely more on conservative securities like bonds in order to preserve what you’ve amassed when you’re about to retire and need it most.

Fidelity Investments, one of the nation’s largest brokerage firms, offers its own line of TDFs.

What are the Fidelity TDFs?

Fidelity offers 14 different TDFs.

Fidelity offers a lineup of 14 different TDFs called the Fidelity Freedom Funds. Each TDF is named after a year that corresponds to the expected year of retirement.

And each Fidelity TDF invests in a variety of stocks, bonds, and other investments. As you get closer to the target retirement year, the fund’s glide path or asset allocation will become more conservative and invest in securities thought to be generally safer.

These funds are managed by Fidelity’s expert investment team. This could make the Fidelity Freedom Funds a good option for hands-off investors.

Should I invest in Fidelity TDFs?

There are some important points you should know about Fidelity TDFs before deciding to invest.

Fidelity is one of the largest financial institutions in the U.S. and they’ve been in the game since 1946. They offer a full-range of brokerage and money management services, and currently serve millions of customers.

Its lineup of TDFs may be the right option for those who don’t have the time or expertise to manage their own retirement savings. However, Fidelity TDFs tend to have expense ratios or fees that are larger than those of their competitors. Fidelity TDF expense ratios range from around 0.64% to 0.78%. This could be because Fidelity TDFs invest partially in actively-managed funds. These funds are designed to attempt to overperform their benchmarks and generally carry higher fees than traditional index funds.

Why we covered this?

Weigh the pros and cons of Fidelity TDFs before investing.

TDFs can be effective retirement savings options. But they vary across different providers when it comes to details like fees, asset allocations, and the funds they invest in. Fidelity offers a line of 14 TDFs called Freedom Funds. To help you decide if these are right for you, we developed this overview.

If you want to learn more about Fidelity, check out our regularly-updated list of Fidelity Investments guides, news, and coverage.

If you want to learn more about Fidelity, check out our regularly-updated list of Fidelity Investments guides, news, and coverage.