How Different Target-Date Funds Shift Assets as Retirement Nears
Firms have varying timetables for moving clients’ assets into retirement-income funds.
When you select a target-date retirement fund, you first find one with a name that contains the year closest to the year you plan to retire. The fund will invest your money in a mix of stocks and bonds that becomes more conservative as the target year nears. Eventually, your money is rolled into a retirement-income fund, which holds the final asset mix.
But fund families differ in when they move your money to the income fund. At American Century, assets are moved into the One Choice In Retirement Portfolio (symbol ARTOX) the year the fund hits its target date, a day that portfolio manager Rich Weiss calls "the riskiest in an investor's life." The American Century income fund holds 45% of its assets in stocks, compared with 31% for its average peer. The relatively high stock allotment explains One Choice's category-leading five-year return.
By contrast, Vanguard and Fidelity customers remain in their target-date funds for years after reaching the target date. At Vanguard, clients shift to Target Retirement Income (symbol VTINX) seven years after the target date. Fidelity waits 15 to 20 years before moving its customers to Freedom Index Income, which invests in index funds, or Fidelity Freedom Income, which holds actively managed funds. The Fidelity and Vanguard funds are more conservative than the American Century fund. Vanguard Income holds just 30% of its assets in stocks, and each of the two Fidelity funds holds 24% in stocks.