Target-Date Fund

A target-date fund automatically:

1. A.Holds only cashThat describes a money market fund, not a target-date fund. Even a fund that has reached its target date holds a diversified mix of stocks and bonds, because a retiree still needs decades of growth; the glide path becomes conservative, it does not become cash.
2. B.Becomes more conservative as the target date nearsCorrect - the glide path de-risks over time.
3. C.Becomes more aggressive over timeThis runs the glide path backwards. Risk capacity is highest when the horizon is longest, so the fund starts equity-heavy and reduces equity as the date nears; growing more aggressive over time would concentrate the most volatility in the years when the investor has the least time to recover.
4. D.Guarantees a return by the target dateThe year in the fund name identifies a planning horizon, not a promise. A target-date fund is a registered investment company whose value floats with its holdings; it can and does lose money in the year it matures, and no guarantee of principal or return attaches to it.

Why: A target-date fund shifts to a more conservative allocation as the target (retirement) date approaches.

A lifecycle (target-date) fund automatically:

1. A.Holds only one stockA target-date fund is a diversified multi-asset portfolio. Holding a single stock would defeat its entire design.
2. B.De-risks the allocation as the target date nearsCorrect - the glide path grows conservative.
3. C.Gets more aggressive each yearThis reverses the glide path. Risk capacity falls as the investor nears the target date, so the fund shifts toward bonds and cash, not further into equities.
4. D.Guarantees a returnA target-date fund guarantees nothing. It manages the asset mix over time, and the investor still bears full market risk - including at the target date itself.

Why: A target-date fund shifts to a more conservative mix as the target retirement date approaches.

Two target-date funds share a 2045 target year, but one uses a "to retirement" glide path and the other a "through retirement" glide path. Comparing them at the 2045 target date, the "through" fund will generally:

1. A.Hold a higher allocation to equities, because it continues reducing risk for years after 2045Correct. A "through" glide path is still de-risking past the target date, so it is more equity-heavy at 2045.
2. B.Hold a lower allocation to equities, because its glide path extends over a longer periodA longer glide path means the de-risking is not finished at the target date, leaving more equity, not less.
3. C.Hold an identical allocation, since both funds share the same target yearThe target year names the fund; it does not dictate the allocation at that date.
4. D.Convert entirely to cash and short-term instruments on the target dateNo mainstream target-date fund liquidates to cash at the target date.

Why: A "to retirement" glide path reaches its most conservative allocation at the target date and holds it constant thereafter. A "through retirement" glide path continues reducing equity for years past the target date, and therefore still carries a higher equity weight at the target date itself. The "through" design accepts more market risk at retirement in exchange for greater longevity protection over a long withdrawal period.

A target-date fund set for a year near the investor's retirement will typically hold:

1. A.100% a single stockTarget-date funds are diversified portfolios by construction and never concentrate in one company. Single-issuer risk is exactly what the structure is built to avoid, at any point on the glide path.
2. B.A more conservative allocation as the date nearsCorrect - the glide path de-risks over time.
3. C.An ever more aggressive allocationThis runs the glide path backwards. Risk is highest in the early years, when there is time to recover, and is dialed down as the target year approaches and the investor loses that cushion.
4. D.Only cash from day oneConservative is the right direction, but from day one is far too early and cash is far too extreme. A decades-long horizon needs equity exposure at the start, and even near the target date the fund typically keeps some growth allocation.

Why: As the target date nears, the glide path shifts to a more conservative allocation.