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 June 30, 2022, in the midst of the coronavirus pandemic, the participant invested in the T. Rowe Price Retirement 2020 Fund would have accumulated over $88,000 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 June 30, 2022
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 $88,000 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
January 1958 to December 2021
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 ©2021
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 June 30, 2022
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 June 30, 2022
| Annualized Performance |
1 year |
3 year |
5 year |
10 year |
15 year |
Since inception (9/30/2002) |
|---|---|---|---|---|---|---|
| Retirement 2020 Fund |
-12.55% | 4.13% | 5.21% | 7.22% | 5.26% | 7.80% |
| S&P Target Date 2020 Index | -10.86% | 2.97% | 4.18% | 6.03% | 4.55% | 6.59% |
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 July 1, 2021, the gross expense ratio for the T. Rowe Price Retirement 2020 Fund is 0.53%.
1 Based on analysis of T. Rowe Price recordkeeping data as of June 30, 2022.
Morningstar Analyst Rating Methodology
Gold Ratings apply to the Investor Class and Retirement I Fund Class of the funds as of February 19, 2021. Analyst Ratings for other share classes or other T. Rowe Price target date series may differ. The 2065 vintage has not been rated due to its limited history.
The Morningstar Analyst Rating™ is not a credit or risk rating. It is a subjective evaluation performed by Morningstar’s manager research group, which consists of various Morningstar, Inc. subsidiaries (“Manager Research Group”). In the United States, that subsidiary is Morningstar Research Services LLC, which is registered with and governed by the U.S. Securities and Exchange Commission. The Manager Research Group evaluates funds based on five key pillars, which are process, performance, people, parent, and price. The Manager Research Group uses this five-pillar evaluation to determine how they believe funds are likely to perform relative to a benchmark over the long term on a risk adjusted basis. They consider quantitative and qualitative factors in their research. For actively managed strategies, people and process each receive a 45% weighting in their analysis, while parent receives a 10% weighting. For passive strategies, process receives an 80% weighting, while people and parent each receive a 10% weighting. For both active and passive strategies, performance has no explicit weight as it is incorporated into the analysis of people and process; price at the share-class level (where applicable) is directly subtracted from an expected gross alpha estimate derived from the analysis of the other pillars. The impact of the weighted pillar scores for people, process and parent on the final Analyst Rating is further modified by a measure of the dispersion of historical alphas among relevant peers. For certain peer groups where standard benchmarking is not applicable, primarily peer groups of funds using alternative investment strategies, the modification by alpha dispersion is not used.
The Analyst Rating scale is Gold, Silver, Bronze, Neutral, and Negative. For active funds, a Morningstar Analyst Rating of Gold, Silver, or Bronze reflects the Manager Research Group’s expectation that an active fund will be able to deliver positive alpha net of fees relative to the standard benchmark index assigned to the Morningstar category. The level of the rating relates to the level of expected positive net alpha relative to Morningstar category peers for active funds. For passive funds, a Morningstar Analyst Rating of Gold, Silver, or Bronze reflects the Manager Research Group’s expectation that a fund will be able to deliver a higher alpha net of fees than the lesser of the relevant Morningstar category median or 0. The level of the rating relates to the level of expected net alpha relative to Morningstar category peers for passive funds. For certain peer groups where standard benchmarking is not applicable, primarily peer groups of funds using alternative investment strategies, a Morningstar Analyst Rating of Gold, Silver, or Bronze reflects the Manager Research Group’s expectation that a fund will deliver a weighted pillar score above a predetermined threshold within its peer group. Analyst Ratings ultimately reflect the Manager Research Group’s overall assessment, are overseen by an Analyst Rating Committee, and are continuously monitored and reevaluated at least every 14 months.
Detailed information about Morningstar's Analyst Rating, including its methodology.
The Morningstar Analyst Rating (i) should not be used as the sole basis in evaluating a fund, (ii) involves unknown risks and uncertainties which may cause the Manager Research Group’s expectations not to occur or to differ significantly from what they expected, and (iii) should not be considered an offer or solicitation to buy or sell the fund.
© 2022 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.
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.
Figure 3 data is Copyright © 2022, 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.
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.
