What Is a Through Fund?

A through fund is a type of retirement fund that continues to automatically reallocate the fund’s holdings to a different mix of assets after the owner of the fund retires. A through fund is in contrast to a regular target-date fund, also known as a “to fund,” which ceases reallocating investments at the date of retirement.

Key Takeaways

  • A through fund is a type of retirement fund that continues to automatically reallocate the fund’s holdings to a different mix of assets after the owner of the fund retires.
  • Through funds stand in contrast to target-date funds, also known as "to funds," which stop reallocating investments after the individual retires.
  • Both through funds and to funds hold riskier assets when the investor is further from retirement and safer assets when the investor nears retirement.
  • The typical allocation shift as an individual nears retirement is from fewer equities to more bonds.
  • Through funds typically have a more risky profile, giving them the potential for higher returns and greater losses at the start. Their portfolios also contain assets that grow beyond the target date to earn more during retirement.
  • Through funds are meant to be held past their target dates, while to funds are likely to work best for you if they are cashed out and/or reinvested at their target date.

Understanding a Through Fund

Both through funds and to funds will typically hold a greater share of risky assets when the fund holder is further from retirement and slowly shift toward holding a greater share of safe assets as the fund owner ages. Usually, this means owning a large share of equities, which tend to carry more risk, when you first start to save for retirement, and gradually selling those assets and purchasing bonds with the proceeds, as bonds tend to carry less risk. 

Through funds tend to start with a more risky mix of assets than to funds. Both reach conservative positions at the target date, but through funds invest less conservatively. This gives them the potential for greater returns—and also greater losses—from the beginning. In addition, their strategy means that a through fund will contain assets that can grow beyond the target date, enabling you to continue to earn large returns during retirement.

Choosing the Right Through Fund

Before choosing a specific target-date fund for your retirement savings, research its glide path, or the manner in which it progressively becomes more conservative, to learn how the fund’s asset allocation will change over time. A through target-date 2045 fund might have a glide path that results in an asset allocation of 60% stocks and 40% bonds and short-term funds in 2045.

The percentage of stocks would decrease gradually during your retirement years, while the percentage of bonds and short-term funds would increase. But even at the target date, there would be both stocks and bonds/short-term funds in your through fund, and this pattern would continue during retirement. Through funds are meant to be held past their target dates, while to funds are likely to work best for you if they are cashed out and/or reinvested at their target date.

Advantages and Disadvantages of Through Funds

A through fund is riskier than a to fund, so savers should only consider them if they are not particularly worried about exhausting their retirement savings too early. Through funds are advantageous for savers who have a lot of extra capital, and want to continue earning a healthy return even during retirement.

The downside of through funds is that they are risky and present a loss of capital. An investor in a to fund will typically withdraw their investments and have their set amount of cash in retirement. This can be reinvested in safe assets, yet, they know in general how much money they are working with. A through fund, on the other hand, could result in a significant decrease in savings if the fund loses value, for example, if a recession hits. This could leave investors with capital in through funds with much less retirement money than they expected.

Investors should really only invest in through funds if they have a high-risk tolerance and are able to absorb losses during retirement, meaning, they have a significant amount of investments that are diversified and a loss in the value of some assets will not significantly set them back.