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Target Date Fund Basics

Target Date Funds (TDFs) are designed to reduce equity exposure as the target date approaches, becoming more conservative as participants age.

Will McGough

By Will McGough on January 7, 2020



The Basics

Target Date Funds (TDFs) are designed to reduce equity exposure as the target date approaches, becoming more conservative as participants age.

 

TDFs are based on the year a participant wants to retire.

 

TDFs are typically created in five and ten year increments. A 5-year 2020 TDF is intended for participants retiring between 2018-2022 or 2019-2023. A 10-year 2020 TDF is for participants retiring between 2015-2024 or 2016-2025.

What is a landing year?

TDFs have a landing year when the equity exposure of the TDF will no longer reduce and remains constant, typically based in the year of expected retirement. When the landing year of a TDF arrives, the investments usually merge to an “income” fund. Income funds typically have a static equity exposure that is lower than Target Date Fund equity exposure to help preserve retirement savings.

But, is it ever that simple?

If and when a 2020 TDF merges to the income fund is dependent on multiple factors.

1. is there an income fund to merge into?

2. Are there any earlier vintage TDFs that have not merged with income—like  2010 or 2015 TDF?

3. When is the landing year?

 

Understanding the design of a TDF’s glide path and how a TDF manager implements the glide path through a collection of vintages, an income fund, and landing year is critical for retirement investors. The various nuances can have meaningful impact, especially since most participants in a 401k plan have access to just a single, one-size-fits-all approach. With the decade coming to a close and a growing popularity, we believe 2020 is going to be a big year for TDFs.

 

For a downloadable PDF of this article please click here.

 

Will McGough

Author: Will McGough

Chief Investment Officer of Retirement Will McGough joined Stadion Money Management in 2003 and currently serves as Chief Investment Officer of Stadion’s Retirement investment strategies which comprises oversight of Stadion’s risk-based, target date, and managed account strategies. He is a member of the Investment Committee and Senior Management team, and serves as as Stadion’s Chief Investment Officer, Retirement. He provides thought leadership for Stadion’s participant level, customized retirement solutions, in order to ensure that its glide path technology and asset allocation are able to support all intermediaries in the defined contribution ecosystem. Will received his BBA in Finance from the University of Georgia and also holds the Chartered Financial Analyst designation. Will is a member of the CFA Institute, the CFA Society of Atlanta, the American Association of Professional Technical Analysts, National Association of Active Investment Managers, the UGA Alumni Association and National Eagle Scout Association.

2020Landing YearTarget Date FundsTDFs
Will McGough
Written By:

Will McGough

Chief Investment Officer of Retirement Will McGough joined Stadion Money Management in 2003 and currently serves as Chief Investment Officer of Stadion’s Retirement investment strategies which comprises oversight of Stadion’s risk-based, target date, and managed account strategies. He is a member of the Investment Committee and Senior Management team, and serves as as Stadion’s Chief Investment Officer, Retirement. He provides thought leadership for Stadion’s participant level, customized retirement solutions, in order to ensure that its glide path technology and asset allocation are able to support all intermediaries in the defined contribution ecosystem. Will received his BBA in Finance from the University of Georgia and also holds the Chartered Financial Analyst designation. Will is a member of the CFA Institute, the CFA Society of Atlanta, the American Association of Professional Technical Analysts, National Association of Active Investment Managers, the UGA Alumni Association and National Eagle Scout Association.


There is no guarantee of the future performance of any Stadion account. Material has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Results based on available universe of Target Date Fund Series, which includes registered mutual funds, and non-registered collective investment funds and insurance accounts. Collective investment funds and insurance accounts are only available for investment to qualified retirement plan assets such as 401(k) plans.The commentary, analysis and opinions expressed are those of Stadion’s investment Team.

 

The commentary, analysis and opinions referenced are as of the date of publication and are subject to change without notice. This material is for informational purposes only and should not be considered investment advice.

 

This is not a recommendation to buy or sell a particular security. The investment strategy or strategies discussed may not be suitable for all investors.

 

The opinions expressed are those of the Stadion Money Management, LLC (“Stadion”) Investment Team. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Forward looking statements cannot be guaranteed. This is not a recommendation to buy or sell a particular security. This material is for informational use only and should not be considered investment advice.

 

Investors must make their own decisions based on their specific investment objectives and financial circumstances. Stadion Money Management, LLC (“Stadion”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.

 

More information about Stadion’s investment advisory services can be found in its Form ADV Part 2, which is available upon request.

 

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