What Is a To Fund?

A "to" fund is a type of target-date fund whose asset allocation becomes most conservative at the fund’s target date. A target-date fund is a mutual fund or an exchange-traded fund (ETF) that is structured in such a way that its assets grow in a way that is optimized for a specific timeframe. The structuring of these funds addresses an investor's capital needs at some future date (hence, the name "target date").

Most often, investors will use a target-date fund to apply to their onset of retirement. 

Key Takeaways

  • A "to" fund is a type of target-date fund whose asset allocation becomes most conservative at the fund’s target date.
  • A target-date fund is a mutual fund or an exchange-traded fund (ETF) that is structured in such a way that its assets grow in a way that is optimized for a specific timeframe.
  • Most often, investors will use a target-date fund to apply to their onset of retirement. 
  • To funds can be contrasted with "through" funds, another type of target-date fund; through funds are designed to help investors through retirement, with the goal of accumulating wealth long after the retirement (target) date.
  • 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.

How a To Fund Works

A target-date fund is made up of other funds. The funds in a target-date fund are intended to offer investor's diversified exposure to a mix of asset classes. These include stocks (large caps as well as small/mid-caps), foreign stocks, bonds, foreign bonds, and maybe a small portion of cashlike securities. 

A to fund might be an appropriate type of target-date fund for someone who expects to cash out their investment when the fund reaches the target date in order to purchase a different type of asset or investment.

Target-date funds typically have a greater percentage of stocks relative to bonds the farther away the target date is. 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.

According to Morningstar, investors had $1.6 trillion in target-date funds in early 2021. 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.

To Fund vs. Through Fund

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 fund is a type of target-date fund that is designed to build up savings “to” an individual’s target retirement date. A through fund is a type of target-date fund that is designed to help investors through retirement, with the goal of accumulating wealth long after the retirement (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. A to fund takes less risk than a "through" fund, and it may achieve lower returns as a result.

For example, 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.