Target date funds are a default in many American workplace retirement plans, and their defining feature is that the portfolio changes on a schedule without the investor acting.
The glide path is the product
Each fund follows a published schedule specifying how the allocation between stocks, bonds and other assets changes as the target year approaches.
The manager implements that schedule by rebalancing the fund's underlying holdings over time rather than by asking the investor to make changes.
Two funds with the same year in the name can follow noticeably different glide paths, which is why the year alone does not describe the fund.
The shift reflects a shortening horizon
An investor decades from needing the money has time for markets to recover from declines, while one close to withdrawing does not.
The glide path reduces exposure to more volatile assets as that recovery time shrinks, which is the reasoning behind the design.
The reduction is gradual rather than a single switch, because a sharp change at one date would make the outcome depend heavily on conditions in that particular year.
To and through are different designs
Some funds reach their most conservative allocation at the target date, on the assumption the investor withdraws the money then.
Others continue shifting for years past the target date, assuming the money will be drawn down gradually over a long retirement.
Those two assumptions produce different allocations at the same age, which is the most consequential difference between funds carrying identical years.
The single-fund assumption matters
A target date fund is constructed to be an entire portfolio, with the internal mix representing the intended allocation.
Holding one alongside other funds changes the overall allocation away from the glide path, often without the investor intending it.
Splitting money across two target date funds with different years does not produce a blend of their strategies so much as an allocation nobody designed.
Costs sit at two levels
Many of these funds are structured as funds holding other funds, so there can be an expense at the underlying level and one at the wrapper level.
Disclosures show the combined figure, and it varies considerably depending on whether the underlying holdings are index funds or actively managed ones.
Because the fund is intended to be held for decades, the ongoing cost applies to the entire balance for the entire period rather than to a single transaction.