A target-date fund’s glide path reflects its risk and return potential over time. The glide path gradually shifts the fund’s asset allocation from a more aggressive position in the early years to a more conservative position as retirement approaches. As you evaluate target-date funds for your plan, review the glide path to determine if the risk/return potential is appropriate at all points along the way.
The glide path checklist below can help you identify a fund’s key strengths and weaknesses. The questions can help you assess the appropriateness of the fund’s equity exposure over time, including during retirement. The checklist also probes the fund’s ability to withstand market swings and whether the glide path will remain stable.
Glide Path Checklist
1. Review equity exposure: Stocks are critical for retirement savings but can be volatile and destructive in down markets.
- Is exposure high enough in the early- and mid-saving years when participants can ride out volatility?
- Do allocations to different equity types change over time?
- Are participants overexposed to risk as they prepare to enter retirement?
2. Analyze the strategy’s resilience: Plan for the fact that no one knows what the future holds for the markets.
Is the allocation designed for a wide range of possible market environments?
Could an overemphasis on bond allocations curtail returns too much?
Is there an over-reliance on strong equity returns?
3. Does the glide path go “to retirement” or “through retirement”? During retirement, equity exposure can be static or continue to adjust downward.
- How is risk managed in the crucial five to 10 years leading up to retirement?
- What is the equity allocation at the point of retirement, when participants are most vulnerable to market shocks?
- How does the glide path balance longevity risk (the risk they’ll outlive their money) with market risk?
4. Evaluate the glide path’s stability: Some managers deviate from strategic allocations, trying to capture opportunistic market plays.
- Does the glide path frequently change in response to short-term market conditions?
- Does your investment committee have the time and expertise to monitor these changes and communicate them to participants?
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost.
Past performance is no guarantee of future results.
Diversification does not assure a profit or protect against a loss of principal.
The opinions expressed are those of our investment professionals, and are no guarantee of the future performance of any American Century Investments® portfolio. This information is not intended to serve as investment advice; it is for educational purposes only.