Viewpoint:
Target Date Funds:
Popular Doesn't Mean Adequate
As a defined contribution plan member, what are
What are the advantages of TDFs?
the two critical decisions you must make in
assuring an adequate retirement?
TDFs allow members to make a simple
decision based on their age or number of
As a DC plan member, you have three decisions
years expected until retirement. The
to make to help ensure you have enough saved
investment then automatically rebalances
for retirement. You should decide: how much to
save, how to invest and how long to invest for.
How do you invest?
toward a more conservative asset mix as
retirement approaches. The logic here is
that, at a young age, an investor has more
time to ride out the ups and downs of the
Target date funds (TDFs) were created in the last
decade, or so, and are becoming increasingly
stock market and can benefit from the long
term expected rate of return.
popular, often designated as the default option
for many plans. In the US, assets in TDFs rose
What did members do prior to TDFs?
from a total of $100 billion in 2005 to over $700
billion in 2015, and more than 60% of new
defined contribution (DC) pension contributions
are now flowing into these funds.
Prior to target date funds, DC members
were often faced with either too few or too
many investment choices. On the one hand
you could have the plan member try to
A TDF is a diversified portfolio, so it will typically
have a wide range of stocks and bonds, which
become less risky over time. For example, the
fund for a 25 year-old will become less risky as
the member ages and by the time they turn 60
figure out how much to put into stocks,
bonds or GICs, or they would invest in a
balanced fund or asset allocation strategy
with an asset mix that didn’t change much
over time.
the fund will have significantly less risk than when
the member first invested.
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PROTEUS