It's time to look under the hood of your target-date fund

Is your target-date fund the right one for you? It's a question worth asking, especially as the markets move from a steady upward trajectory to a zigzag line.

Target-date funds — the foundation of many 401(k) plans for their easy, hands-off approach — are put through their paces during market volatility.

Being hands-off may be well and good when the market is going strong. But investors are often spooked when it's not, which can lead to panic selling, locking in losses.

That makes now a good time to ensure you are comfortable with the level of risk you are taking, including within any target-date fund in your portfolio.

Target-date funds are mutual funds designed to align with when the fund's investors plan to retire. To that end, they are invested with a year in mind and automatically rebalanced to take more risk early on and less risk as that date approaches.

A 30-something investor might choose a 2050 target date fund, for example, which would currently be heavily invested in stocks — and could be heavily rattled by short-term market fluctuations. Just how heavily depends on the fund itself — the investment allocation even of target-date funds tagged with the same year can vary by 10 percent or more.

Many people in target-date funds don't know how they are invested or how much risk they are taking, said Jeff Weber, a California certified financial planner and wealth adviser. That's largely thanks to auto-enrollment programs that opt workers into a 401(k) and often use an appropriate target-date fund as the default option.

That's not to say that short-term market volatility should dictate your investment decisions — in a stock market that averages 10 percent annual returns, dips are mere blips and generally don't require a change in your investment strategy. But if you can't handle the heat of a fund tipped aggressively toward stocks, turning down the fire is a better option than pulling out completely.

Mutual funds are like a basket of investments; the idea is that investors can purchase many holdings in a single transaction. A target-date fund is typically set up as a "fund of funds," or a mutual fund that holds other funds. Meta, but efficient.

To find out what's inside your fund, you will want to look at its prospectus, or at the fund's information page on your 401(k) or other account provider's website. You can get as deep as you want here: You can look at the overall allocation of assets between stocks, bonds and cash, or you can delve into each of those categories for the list of the specific funds and assets that make up each bucket. At the very least, you want to make sure that the proportion of stocks to bonds is where you would like it to be.

Ideally, this is at least an annual exercise, Weber said. "These funds will make adjustments annually, adjusting down their equity position a point or two in reduced exposure as the fund gets closer to the target date." Make sure you like any adjustments you see.

There's a lot you can't control when it comes to investing — namely, market swings. One thing you can control, at least to some extent, is fees.

A fund's prospectus or information page will outline its expense ratio, or annual cost.

The trouble is that many 401(k) plans offer target-date funds from a single fund provider; you may have only one option for the year nearest your projected retirement date. If that option doesn't align with your appetite for risk — or for fees — you have a few choices.

The easiest solution is to select a different date — an earlier one, if you want to take less risk, or a later one if you want to take more. Yes, the dates are supposed to track to your retirement age, but there's no one checking IDs at the door of the target-date fund club. Someone who finds a 2050 fund too vanilla can easily opt into a 2055 or 2060 fund instead.

If that doesn't feel like a viable option, or you are uncomfortable mingling outside your age group, you can either build your own portfolio out of other funds within your 401(k) plan, or contribute enough to earn your employer match and then take additional contributions for the year to an IRA.

An IRA offers the tax advantages of a 401(k) with a wider fund selection and, consequently, more control over fees. You can even open an IRA at a robo-adviser, which is a service that builds and manages a portfolio of low-cost funds for you.