Target Date
Don't Trade Tomorrow for Today
Target Date Investing Through Volatility
The coronavirus pandemic has unsettled markets and investors around the world. Through this time of uncertainty, our experienced target date team is staying grounded and focused on delivering successful retirement outcomes. Taking this long-term approach is critical, especially for investors in target date portfolios, which are meant to help prepare for and achieve an important long-term goal: a secure retirement.
Short-term focus comes at a high long-term price
Our target date strategic design and investment process have led to strong outcomes over the long term, inclusive of the impact of short-term market disruptions such as the 2008–2009 global financial crisis and the coronavirus pandemic. That success is predicated, in part, upon a balanced view of the myriad risk factors—both short and long term—impacting retirement investors. And while reducing volatility can potentially mitigate a short-term downside experience, it can also lead to lower expected returns over time and elevated longer-term risk to sustainable retirement income.
To illustrate this point, consider the experience of two plan participants who invested $100,000 within target date solutions in 2002 (Figure 1). The first participant invested in the T. Rowe Price Retirement 2020 Fund and the second in an investment designed to track the S&P Target Date 2020 Index. As of March 31, 2021, in the midst of the coronavirus pandemic, the participant invested in the T. Rowe Price Retirement 2020 Fund would have accumulated over $101,000 more.
(Fig. 1) Despite Recent and Historic Periods of Volatility, Our Approach Has Led to a Better Outcome
Growth of $100k Invested in the T. Rowe Price Retirement 2020 Fund and S&P Target Date 2020 Index on September 30, 2002
As of March 31, 2021
Following market downturns, a participant invested in the T. Rowe Price approach would have seen their balance fall from a higher peak. As the market recovered, the T. Rowe Price investor would have had over $101,000 more in the account.
Performance data quoted represents past performance and is not a reliable indicator of future performance. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain the most recent month-end performance, visit troweprice.com.
Source: S&P Dow Jones Indices LLC
The case for a consistent, long-term orientation to target date investing is further illustrated by a simple question with a powerful answer: Would you rather lose 10% of $1,000,000 or 5% of $900,000 (Figure 2)?
The math makes the answer clear. And that answer is broadly understood by plan sponsors, 60% of whom agree that the cost of mitigating downside risk and portfolio volatility is a reduced expected withdrawal amount (e.g., income) throughout retirement.
(Fig. 2) Putting Loss Into Perspective
For illustrative purposes only and does not represent the performance of any product.
The prudence of a long-term focus is also accentuated by the relative duration of bull and bear markets. Since 1958, the average monthly duration of bull markets is four times longer than that of bear markets (Figure 3). The average price appreciation of 148% for the S&P 500 Index during those bull markets also exceeds the average price depreciation of -31% for the S&P 500 Index during the applicable bear markets.
(Fig. 3) S&P 500 Cumulative Price Return in Bull and Bear Markets
Past performance is not a reliable indicator of future performance.
Sources: T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved, Standard & Poor’s. Copyright ©2020
For this chart, a bear market is defined as a drop of more than 15% in the S&P 500 Index.
Retirement Plan Participants Stay the Course
The behavior of target date investors continues to align with our long-term approach. During the opening weeks of the coronavirus related market downturn, over 98% of the target date investors within a T. Rowe Price-administered retirement plan stayed the course and did not make changes to their investments.1 As Figure 4 demonstrates, this behavior is consistent with low target date transaction volumes exhibited in past periods of volatility.
(Fig. 4) Target Date Funds (TDF): Lower Exchange Activity During Market Volatility
Percent of Investors That Made an Allocation Change
September 30, 2006 through March 31, 2021
Source: T. Rowe Price Retirement Plan Services.
At T. Rowe Price, we believe retirement investors should remain focused on their long-term goals. Investing in T. Rowe Price target date portfolios offers a disciplined strategy designed to help investors reach their destination in the long run, despite short-term market volatility along the way. For more information on how we can help investors remain focused on their long-term goals, please contact your T. Rowe Price representative.
Standardized Performance
As of March 31, 2021
| Annualized Performance |
1 year |
3 year |
5 year |
10 year |
15 year |
Since inception (9/30/2002) |
|---|---|---|---|---|---|---|
| Retirement 2020 Fund |
35.83% | 9.79% | 10.13% | 8.31% | 7.05% | 8.87% |
| S&P Target Date 2020 Index | 25.04% | 8.03% | 8.22% | 7.05% | 6.07% | 7.49% |
Performance data quoted represents past performance and is not a reliable indicator of future performance. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain the most recent month-end performance, visit troweprice.com.
As of June 1, 2020, the gross expense ratio for the T. Rowe Price Retirement 2020 Fund is 0.57%.
1 Based on analysis of T. Rowe Price recordkeeping data as of March 31, 2021.
Important Information
This material is provided for general and educational purposes only and not intended to provide legal, tax, or investment advice. This material does not provide recommendations concerning investments, investment strategies, or account types; it is not individualized to the needs of any specific investor and not intended to suggest any particular investment action is appropriate for you, nor is it intended to serve as the primary basis for investment decision-making.
S&P Target Date 2020 Index is designed to represent asset class exposure for glide path products with target dates up to 2020. Investors cannot invest directly in an index.
The fund may have other share classes available that offer different investment minimums and fees. See the prospectus for details. Data shown are for the T. Rowe Price Retirement Date 2020 Fund, Investor Class. The 2020 vintage is shown for illustrative purposes to represent a portfolio at target retirement.
The fund’s total return figures reflect the reinvestment of dividends and capital gains, if any.
The principal value of the Retirement Funds is not guaranteed at any time, including at or after the target date, which is the approximate year an investor plans to retire (assumed to be age 65) and likely stop making new investments in the fund. If an investor plans to retire significantly earlier or later than age 65, the funds may not be an appropriate investment even if the investor is retiring on or near the target date. The funds’ allocations among a broad range of underlying T. Rowe Price stock and bond funds will change over time. The funds emphasize potential capital appreciation during the early phases of retirement asset accumulation, balance the need for appreciation with the need for income as retirement approaches, and focus on supporting an income stream over a long-term postretirement withdrawal horizon. The funds are not designed for a lump-sum redemption at the target date and do not guarantee a particular level of income. The funds maintain a substantial allocation to equities both prior to and after the target date, which can result in greater volatility over shorter time horizons.
IMPORTANT CHANGES TO THE TARGET DATE FUNDS: T. Rowe Price is making changes to the glide path of our target date funds. The glide path will be transitioning to the allocations shown below. Specifically, beginning in the second quarter of 2020, the funds’ glide path will gradually change to increase its overall equity allocation at certain points and accordingly decrease its fixed income allocation. Note that there will be no change to the allocation at the target retirement date. For example, the equity allocation at the beginning of the enhanced glide path will be increasing from the original 90% allocation and will be increasing from the original 20% allocation at the end of the glide path. Adjustments to equity and fixed income allocations will be made incrementally, and we expect the transition to the enhanced glide path to be completed in the second quarter of 2022, depending on market conditions. The 2065 vintage follows the enhanced glide path and does not have a transition period. Please see the prospectus for additional details.
Figure 3 data is Copyright © 2021, S&P Global Market Intelligence (and its affiliates, as applicable). Reproduction of any information, data or material, including ratings (“Content”) in any form is prohibited except with the prior written permission of the relevant party. Such party, its affiliates and suppliers (“Content Providers”) do not guarantee the accuracy, adequacy, completeness, timeliness, or availability of any Content and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such Content. In no event shall Content Providers be liable for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of the Content.
Morningstar Awards 2021 © Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
Retirement Pulse survey conducted by P&I Content Solutions Group and statistical analysis conducted by Signet Research Inc. in early 2018. Survey population includes 289 corporate, nonprofit, and government plan sponsors with assets: 49% less than $500M, 15% between $500M and $1B, 32% between $1B and $15B, and 4% more than $15B.
Consider the investment objectives, risks, and charges and expenses carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, call 1-800-564-6958. Read it carefully.
T. Rowe Price Investment Services, Inc., Distributor.
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