A target-date fund is an investment strategy that automatically resets the asset mix of stocks, bonds and cash equivalents in its portfolio, according to a selected time frame that is appropriate for a particular investor. It's structured to address some date in the future, such as year of retirement.
Like any other type of investment, returns are not guaranteed but depend on how the market performs.
Target-date funds are popular with 401(k) plan investors. Stacy Francis, certified financial planner and president and CEO of Francis Financial, details the pros and cons of target-date funds.
She points out that instead of having to choose a number of investments to create a portfolio that will help them reach their retirement goals, investors simply choose a single fund designed to help them reach that goal.
Read MoreMaking heads or tails of TIPS
The fund's managers then rebalance the fund's assets each year and keep its investments on track to meet the fund holder's goal of using that investment to begin paying for his or her retirement in a particular year.
This convenience to investors of putting their investing activities on autopilot in one fund is both a positive and negative, Francis said.