What is the aim of target-risk funds in investment strategy?

The aim of target-risk funds is to create a desired risk profile through mixed asset allocations. This approach is designed to align with the investor's risk tolerance by diversifying investments across various asset classes, such as equities, bonds, and cash equivalents. By adjusting the proportions of these assets, target-risk funds allocate investments in a way that reflects a specific risk level, catering to investors who may be more conservative or aggressive in their investment strategies.

These funds typically categorize themselves into different risk levels, often labeled as conservative, moderate, or aggressive, allowing investors to select a fund that corresponds to their individual risk tolerance. Over time, as market conditions change, the asset allocation may be managed to maintain this targeted risk profile, making it a strategic choice for those seeking a structured investment solution.

Other approaches, such as aiming for the highest possible returns without regard to risk or focusing exclusively on a single type of investment, do not align with the fundamental purpose of target-risk funds, which is about achieving a balanced approach to risk and return based on the investor's comfort level.