Investing Spotlight: Target Date and Stable Value Funds

One benefit of investing in a retirement plan is that you have access to two special kinds of investments: target-date funds and stable value funds. These funds serve very different purposes, but both can help with your retirement-savings goals at different times in your life.

Target-date funds* can help with making sure your asset allocation match your timeframe when saving for retirement. Basically, you choose a fund with a target year that's closest to the time you plan on beginning withdrawals, and experts who run the fund will manage your investments, gradually shifting your money from mostly equity funds to mostly bond funds — when appropriate for your time horizon. For example, you could invest in the 2030 fund if you plan to begin withdrawals 10 years from now or the 2040 fund if you plan to begin withdrawals another 20 years from now.

Knowing that investment professionals are making all the investment decisions for you can help you avoid panicking during periods of volatility, which could lead you to pull your money out of the equity market and miss opportunities when the market rebounds.

Because equities tend to outperform other asset classes over the long run, but have more volatility over the short term, target-date funds tend to invest primarily in equity funds when you are many years away from retirement. The Vantagepoint Milestone 2055 Fund,* for example, currently has about 87% of its investments in equities, 7% in multi-strategy, and 6% in fixed-income and stable value.

But as you get closer to beginning withdrawals, you likely won’t have as much tolerance for market risk. After all, you don’t want to have to sell investments for a loss in a down market to pay your bills. To protect against this, the investment professionals running the fund will gradually shift money to more conservative investments as the target date nears. The industry term for this shift is “aging” and funds typically age at least once per year.

Even after you begin withdrawals, you may still live another 20 or 30 years and your long-term savings need to keep up with inflation. So target-date funds won’t shift all of your money to fixed income or cash, but will continue to invest some of it in equity funds. For example, the Vantagepoint Milestone 2020 Fund* currently has 49% of its investments in fixed income and stable value, 46% in equities,  and 5% in multi-strategy.

After you reach the target date of the fund, the Vantagepoint Milestone Funds continue to get more conservative for the next 10 years, then they keep a constant allocation for the future. For instance, 10 years after you reach the target date, the Vantagepoint Milestone Fund* currently keeps about 67% of its investments in fixed income and stable value, and 33% in equities. And it maintains a constant allocation.

Stable value funds can provide you with a conservative investment option with a competitive level of income. They are only available in employer-based retirement plans, such as 457 and 401(k) plans, and some retiree health plans. They seek to outperform cash and money-market accounts over time and can be appropriate for people who will be withdrawing their money in the next few years or who seek a low-risk investing option. They tend to invest in various fixed-income instruments from cash equivalents to fixed income securities that mature, on average, from one to three years.

Stable value investments should be considered as part of a diversified investment portfolio, especially for those with low tolerances for risk and/or shorter time horizons. Keep in mind that diversification does not protect an investor from market risks and does not assure a profit. An investor must consider the risk associated with all funds used to diversify assets.

All funds have risks, including stable value funds. See our website for more information about target-date funds, stable value funds, and disclosure material on funds available at MissionSquare Retirement.

*The Fund is not a complete solution for all of your retirement savings needs. An investment in the Fund includes the risk of loss, including near, at, or after the target date of the Fund. There also is no guarantee that the Fund will provide adequate income at and through an investor’s retirement.

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