According to Vanguard’s annual benchmarking study How America Saves 2011. 48% of participants in an employer-sponsored retirement plan are investing in a target-date investment. While this may appear to be a clear indication of target-date investments’ popularity, a large percentage of target-date participants are unaware that they are actually investing in them. (Investor comprehension and usage of target-date fund: 2010 survey .)

Do you know if you are investing in a target-date investment? The simple answer: Check your account statement.

A Vanguard target-date investment is easy to spot. Almost all of our target-date investments contain a calendar year in their name (such as Vanguard Target Retirement 2030 Fund or Target Retirement 2045 Fund). The year in the name represents the fund’s target date. This is the approximate year that an investor in the fund would retire and leave the workforce. The only investment that does not contain a year in its name is Vanguard Target Retirement Income Fund.

Okay, I’m in. Why?

Once you’ve determined that you’re in a target-date investment, the next mystery to be solved is how you got there. You either a) actively chose the fund when you joined your employer’s retirement plan, or b) let your employer choose it for you.

If you can’t remember choosing the fund on your own, odds are your employer chose it for you through a process called auto-enrollment. Auto-enrollment works like this: Upon reaching eligibility, and given a suitable period of time to opt out, you are automatically signed up to participate your employer’s retirement plan.

Auto-enrollment is typically used to help employees join their retirement plans as early as possible. Auto-enrollment can also help employees overcome enrollment obstacles such as inertia, procrastination, and initial investment decision-making.

Some plans that auto-enroll participants also choose what are considered to be appropriate balanced funds as default investments. Following the 2006 Pension Protection Act, target-date investments have increasingly become the dominant default funds for plans that auto-enroll participants.

Understand the risks

If you’re surprised to find yourself in a target-date investment, take some time to understand the risks associated with the funds.

Actually, all investing is subject to risk. Target-date investments are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. Target-date investments are not guaranteed at any time, including on or after the target date.

Investments in bond funds are subject to interest rate, credit, and inflation risk.