DEFINITION of 'To Fund'

To fund is a type of target-date retirement fund whose asset allocation becomes most conservative at the fund’s target date. A "to" fund might make sense for someone who expects to cash out his/her investment when the fund reaches the target date in order to purchase a different type of asset or investment.

BREAKING DOWN 'To Fund'

Target-date funds typically have a greater percentage of stocks relative to bonds the farther away the target date is. A "to" fund takes less risk than a "through" fund, and it may achieve lower returns as a result. The other big risk of using a to fund is that, if you hold it past the target date, its lack of investment risk means your nest egg will not continue to grow and you could outlive your retirement savings.

Reaching the Target

Before investing in any target-date fund, investors should examine its glide path (how it progressively becomes more conservative) to determine how the fund’s asset allocation changes over time and whether it is a "to" fund or a "through" fund.

A “to” target-date 2045 fund might have a glide path that results in an asset allocation of 0% stocks and 100% bonds and short-term funds in 2045, whereas a “through” 2045 target-date fund might still be invested 60% in stocks with the remaining 40% in bonds and short-term funds. The "through" fund’s percentage of stocks would continue to decrease gradually after the target date so that, during retirement, the percentage of bonds and cash equivalents would continue to increase. The “to” fund’s asset allocation would not change after reaching the target date. 

"Through" funds are meant to be held past their target dates, while "to" funds are likely to work best if they are cashed out and/or reinvested at their target date.

Target date funds are popular these days. At the end of 2017, Morningstar reported that target-date mutual funds rose to $1.11 trillion in assets from $880 billion at the end of 2016, and just $158 billion in 2008.

These funds aren't for everyone, however. Their expenses tend to be higher than index funds and other passive investments. Their holdings may duplicate other parts of an individual's portfolio, and some of them may invest too conservatively for long-term investors. It also may be difficult for investors to determine whether a particular fund is a "to" or "through" without pouring over lengthy prospectus documents. If in doubt, call the fund and ask.

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