Posted in Finance, Accounting and Economics Terms, Total Reads: 300
Definition: To Fund
To fund is a type of the target date retirement fund whose asset allocation becomes most conservative at the target date of the fund. A to fund can make sense for the one who wants to cash out his investment after the fund reaches its target date to purchase a different type of an investment or an asset.
Target date funds generally have more stocks percentage as compared to the bonds, the farther away the target date is. A ‘to’ fund is lesser risky than a through fund. So, the returns are also lower on them. There is another risk associated with the ‘to’ funds. If it’s held past the target date without an investment, it means that the nest egg won’t grow anymore & one can outlive his retirement savings.
Before investing in a target date fund, the investors must examine its glide path which means how it progressively becomes more conservative, for determining the allocation changes in the asset of the funds over the time period & decide if it’s a to or a through fund. Through funds are meant to be held post the target date. But the ‘to’ funds work best if are cashed out or reinvested at the target date.
A to fund may have a glide path which results in an asset allocation of the 0% stocks with 100% bonds & the short term funds at the target date. But a through fund may still be invested 60% in the stocks with the remaining 40% in bonds & the short term funds. The percentages of stocks of the through funds will continue to decrease gradually after the target date so that the percentages of the bonds & the cash equivalents should increase during the retirement. The “to” fund’s asset allocation wouldn’t change after reaching the target date.