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The role of a target date fund and how to choose one

These funds offer ease and convenience to investors with longer time horizons.


Targeting Investment Savings

Target date funds (TDFs) have risen in popularity over the past decade.

75% of all 401(k) plan participants were offered TDFs in 2016, up from 62% in 2006.

685 total TDFs as of 2018. (more than 2x the number in 2008.)

$53.2 billion in average annual net new cash flow into TDFs over the past 10 years.

86% of the $1.7 trillion U.S. investors held in TDFs in 2018 were in retirement accounts.

Year-end U.S. assets held in TDFs:

2018 $1.7 trillion

2015 $763 billion

2005 $70 billion

Sources: ICI’s 2019 Investment Company Fact Book (https://www.icifactbook.org/);

Morningstar (https://www.morningstar.com/lp/tdf-landscape)

What to Know:

  • Time horizon: Pick a target date that matches the year you want to retire.
  • Risk tolerance: Generally, your tolerance to risk lowers as you get closer to retirement.
  • Glide path: The changing mix of stock, bonds and cash equivalents. It becomes more conservative over time.

What to Consider:

  • Is the fund actively or passively managed?
  • Is there a focus on domestic or international exposure?
  • Have alternative assets been included to manage risk?
  • Have you accounted for fund fees?
  • Will the fund carry you to or through retirement?

Not All Glide Paths Look The Same...

They can start and end at different equity allocations and can adjust differently over time.

Glide paths can remain static at retirement or can continue to adjust for a few years beyond.

CHART text:

Percent of Equity Allocation

Years to Retirement

COMPANY A

COMPANY B

COMPANY C

COMPANY D

EQUITY LANDING POINT = Point at which the TDF reaches its lowest equity allocation

For more information on target date funds, go to statefarm.com/mutualfunds.

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Securities distributed by State Farm VP Management Corp.

Target Date Funds are portfolios whose investment objectives are adjusted over time to be more conservative as the target date (date the investor plans to start withdrawing their funds) approaches. The principal value of the fund(s) is not guaranteed at any time, including at the target date.

Diversification does not assure a profit or protect against loss.

Securities are not FDIC insured, are not bank guaranteed and are subject to investment risk, including possible loss of principal.

Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations.

Neither State Farm® nor its agents provide tax or legal advice.

AP2019/08/0891


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