American Funds 2055 Target Date Retirement Fund

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How Target Date Funds Work

Target Date Funds: Americas #1 Retirement Investment

Financial services firms manage families of target date funds, with individual versions for each year, past and future. Investors choose a fund that targets their anticipated year of retirement, and they may continue holding it until long after the target year has passed.

With target date funds, the term glide path describes how a funds asset allocation changes over time. All of the funds on this list utilize a through glide path, where the managers continue to adjust the balance of stock and bond funds after the designated target year. For some funds, the asset allocation changes end about five to seven years after the target date. For others, the changes continue for several decades.

For each target date fund in our evaluation, we focused on the 2060 version, suitable for someone looking to retire in about 40 years. In addition, we also evaluated the 2020 version, and some earlier versions, for insight on how the fund familys portfolio evolves as you enter retirement.

The author held no positions in the securities discussed in the post at the original time of publication.

Why Consider This Fund

  • You want the opportunity to remain in the same portfolio after the target date is reached
  • You want one-step diversification with exposure to domestic stocks, international stocks and fixed-income securities
  • You’ve considered your risk tolerance and want your asset allocation to become more conservative over time, but still provide growth after your retirement date to protect against longevity risk
  • You want an actively managed asset allocation portfolio investing in actively managed underlying funds

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Notes & Data Providers

Stocks: Real-time U.S. stock quotes reflect trades reported through Nasdaq only comprehensive quotes and volume reflect trading in all markets and are delayed at least 15 minutes. International stock quotes are delayed as per exchange requirements. Fundamental company data and analyst estimates provided by FactSet. Copyright © FactSet Research Systems Inc. All rights reserved. Source: FactSet

Indexes: Index quotes may be real-time or delayed as per exchange requirements refer to time stamps for information on any delays. Source: FactSet

Data on U.S. Overview page represent trading in all U.S. markets and updates until 8 p.m. See Closing Diaries table for 4 p.m. closing data. Sources: FactSet, Dow Jones

Stock Movers: Gainers, decliners and most actives market activity tables are a combination of NYSE, Nasdaq, NYSE American and NYSE Arca listings. Sources: FactSet, Dow Jones

ETF Movers: Includes ETFs & ETNs with volume of at least 50,000. Sources: FactSet, Dow Jones

Bonds: Bond quotes are updated in real-time. Sources: FactSet, Tullett Prebon

Currencies: Currency quotes are updated in real-time. Sources: FactSet, Tullett Prebon

Cryptocurrencies: Cryptocurrency quotes are updated in real-time. Sources: CoinDesk , Kraken

Calendars and Economy: ‘Actual’ numbers are added to the table after economic reports are released. Source: Kantar Media

A Portfolio That Adjusts As Participants’ Careers Progress

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At Voya, our glide path relative to peers has a higher equity allocation for younger participants to build wealth and a lower equity allocation for participants near and in retirement to reduce risk in those critical years. Younger participants can afford to take on more investment risk in exchange for greater potential returns. However, in the later years, participants are more vulnerable to a market downturn, particularly the day they retire.

The Portfolio may periodically deviate from the Target Allocation, generally within the range of +/- 10% relative to the current Target Allocation. The sub-adviser may determine to deviate by a wider margin in order to protect the Portfolio, achieve its investment objective, or to take advantage of particular opportunities. This chart is for illustrative purposes only and may not reflect the current allocations of the Voya Target Solution Trust Series. This illustration is intended to show how the Voya Target Solution Trust Series transitions over time.

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Investment Objective And Policies

Depending on the proximity to its target date, the fund will seek to achieve the following objectives to varying degrees: growth, income and conservation of capital. The fund will increasingly emphasize income and conservation of capital by investing a greater portion of its assets in bond, equity-income and balanced funds as it approaches and passes its target date. In this way, the fund seeks to balance total return and stability over time.

How We Make Money

Target Date Funds: Americas #1 Retirement Investment Dual View

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

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0.64%

The T. Rowe Price 2060 Fund allocates 90% to equities and 10% to cash and bonds. While the cost of this target date fund is on the high side at 71 basis points, its five-year performance comes in at 12.74%.

T. Rowe Prices target date fund owns more than 20 different mutual funds to implement its investment strategy.

Of the funds that made our list, T. Rowe Price takes the most aggressive approach at retirement. Its 2020 fund has a 60% weighting in stocks. While some would argue that 60% is too aggressive for a retiree, its consistent with research on the 4% rule. The fund, however, continues to reduce equities in retirement, ending with an equity allocation of about 35%.

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How American Funds Target Date Retirement Portfolios Work

American Funds Target Date Retirement Portfolios, a Target Date asset allocation option, are designed to take you through retirement.

The asset mix of each Portfolio is based on a target date. This is the expected year in which participants in a Portfolio plan to retire and no longer make contributions. A team of asset allocation professionals adjusts each Portfolios make-up over time to ensure a noticeable and steady shift from equities to fixed income in the years leading to retirement.

The American Funds Target Date Retirement Portfolios are composed of actively managed funds and are managed to help retain your potential for growth, and aim to preserve the value of your assets at and after retirement.

As each Portfolio glides over time, its asset mix is adjusted. Looking at the image below:

  • Designed to take you through retirement
  • Portfolios maintain meaningful equity exposure to help you manage the risk of outliving your savings
  • Each funds investment allocation gradually transitions from a growth-oriented approach to a more income-oriented focus as the fund approaches and passes its target retirement date.

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