A Holistic Approach to Target Date Design

Paul Zemsky

Paul Zemsky, CFA

Chief Investment Officer, Multi-Asset Strategies and Solutions

Halvard Kvaale

Halvard Kvaale

Head of Manager Research and Selection

Barbara Reinhard

Barbara Reinhard, CFA

Head of Asset Allocation

Overview of Target Date Funds: Different Paths Toward a Common Goal

For plan participants, target date funds simplify the complex task of saving and investing for retirement by automatically allocating assets based on each individual’s age and retirement date. This simplicity can be powerful in a world of increasingly complex financial choices and explains why target date funds are expected to capture between 65–80% of all flows1 to defined contribution plans over the next five years.

For plan sponsors, evaluating target date funds is anything but simple. Divergent investment methodologies across target date funds have delivered dramatically different results over time. As a result, it is critical for plan fiduciaries to understand these differences in order to select the fund that best matches the needs and characteristics of their plan and its participants. We believe this evaluation process should focus on four key components.

Evaluating Target Date Funds: Four Key Components to Consider

In the following sections, we explain how Voya approaches each of these four components to build holistic solutions that help prepare investors for a successful retirement.

Conclusion

Evaluating target date funds is a multi-faceted process that involves a deeper dive into the four key aspects of target date design — glide path, asset allocation, underlying managers and portfolio construction — to select one that is best aligned with a plan’s objectives, philosophy and participants. This also allows the plan fiduciary to evaluate fees relative to the value that the target date manager provides.

Voya’s disciplined approach to each of these four components is directly focused on helping its investors prepare for a successful retirement.

We believe this holistic approach delivers the following benefits to plan sponsors and ultimately participants:

  • Glide path design that seeks to maximize risk-adjusted returns throughout the accumulation phase and preserve accumulated assets in the preservation and withdrawal phases of the investor’s life cycle
  • Asset allocation that is diversified across a broad range of risk premiums, to enhance risk-adjusted returns over the long term and augment our ability to manage varying risks based on the investor’s proximity to retirement
  • Underlying manager construct that reflects retirement plan best practices by granting exposure to respected investment managers across the industry, providing an additional layer of diversification that may be beneficial to investors
  • Portfolio construction that thoughtfully builds a target date suite, balancing all aspects of target date design with the changing risks that an investor faces through an entire lifecycle
IM1135364

A target date is the approximate date when investors plan to start withdrawing their money. Glide path refers to how a target date strategy's underlying asset mix (equities and bonds) changes over the life of the strategy; i.e., from the initial investment to the target date. Principal value fluctuates and there is no guarantee of value at any time, including the target date.

1Source: Cerulli Associates, “Defined Contribution Distribution 2019”

Investment Risks

There are no guarantees a diversified portfolio will outperform a non-diversified portfolio. Diversification does not guarantee a profit or ensure against loss. Past performance is no guarantee of future results.

Inherent in all investing are the risks of fluctuating prices and the uncertainties of rates of return and yield. A target date is the approximate date when investors plan to start withdrawing their money; principal value fluctuates and there is no guarantee of value at any time, including at the target date.

Price volatility, liquidity and other risks accompany an investment in equity securities of foreign, smaller capitalized companies. International investing poses additional, special risks including currency fluctuation, economic and political risks not found in solely domestic investments. For investments in emerging markets, such foreign investing risks are generally intensified.

Important Information

This paper has been prepared by Voya Investment Management for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) changes in laws and regulations, and (4) changes in the policies of governments and/or regulatory authorities. The opinions, views and information expressed in this commentary regarding holdings are subject to change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Fund holdings are fluid and are subject to daily change based on market conditions and other factors.

Investment related documents, such as prospectuses, may not be available to prospective investors in some jurisdictions where such investments are prohibited for sale. The opinions, views and information expressed in this presentation regarding holdings are subject to change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Portfolio holdings are fluid and are subject to daily change based on market conditions and other factors.

Products and services are offered through Voya family of companies. Please visit us at http://voya.com for information regarding other products and services offered through Voya family of companies. Not all products are available in all states.

Please consider the fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this information and other information about the fund. Check with your financial advisor to determine which funds are available for sale within their firm. Not all funds are available for sale at all firms. For more complete information, or to obtain a prospectus on any Voya fund, please call (800) 992-0180 or visit us at www.voyainvestments.com. Please read all materials carefully before investing.