A Target Date Fund (TDF) adjusts its investment strategy based on which criteria?

A Target Date Fund (TDF) is designed to automatically adjust its asset allocation over time based on a specific timeline, typically aligned with the investor's planned retirement date. The primary criterion for a TDF is the chosen retirement year, which determines not only how aggressively the fund invests initially but also how it gradually becomes more conservative as the target date approaches.

In the early years, the fund may hold a higher percentage of equities to capitalize on growth potential. As the target date gets closer, the fund shifts its allocation toward more fixed-income securities to preserve capital and reduce risk. This systematic adjustment based on the retirement timeline is what distinctly characterizes TDFs and makes them appealing for investors looking for a hands-off investment approach as they near retirement.

Options like investment fees and market volatility can influence the overall performance of the fund but do not dictate its investment strategy adjustments. Similarly, while an investor's age may play a role in determining their investment strategy, TDFs specifically focus on the target date of retirement rather than individual age.