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Target-date funds in Canada: Investing for the year you plan to retire


A target-date mutual fund or exchange-traded fund (ETF) is basically a one-stop shop for a retirement saving strategy. Canadian investors simply choose the year they would expect to stop working, then buy a target-date fund targeting the same or nearly the same year.

At this point, target-date investors pretty much go back to whatever else they were doing. Behind the scenes, however, investment managers will be gently nursing the savings toward the investor’s retirement goal. If you decide to go with a target-date fund, your role in the process is to continue to make regular contributions and check in occasionally to ensure everything is on track according to your expectations.

Simple, right? Well, that’s the plan. But there is more.

What is a target-date fund?

Target-date funds carry names along the lines of “2030 Target-Date Fund,” “2035 Target-Date Fund,” “2040 Target-Date Fund,” and so on. The number is the detail to watch. It represents the year in which fund investors generally expect to retire. That date, in turn, determines the fund’s asset mix.

Those with later dates—say 2050, 2055, or even 2060—are geared toward younger investors. Generally, they’ll have a greater proportion of equities in their asset mix compared to fixed income or bond investments. Equities can be volatile, but they generate growth over time. So, loading up on them when you have a long time horizon for your investments is a good way to build wealth.

Funds with sooner target dates, meanwhile, have more weight in income-focused investments, such as bonds. These funds are about protecting capital and are generally for investors focused on conserving their wealth as they near retirement age and start to draw an income. 

Regardless of the year, all funds rebalance their asset mixes as they mature, creating what investment managers call a “glide path” toward the target retirement date—a soft landing for when you’re ready to say goodbye to the work-a-day life.

Under the hood, most target-date funds are “funds of funds.” That means they are made up of investments in other funds representing different asset classes—stocks and bonds, for example—rather than individual investments, such as those a stock-picker would make.


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