A Targeted Approach to Investing For Retirement

Target-date funds can be a simple and effective way to build wealth for retirement.

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Target-date funds have grown steadily in popularity over the last decade, especially within Defined Contribution (DC) pension plans. These mutual funds are all-in-one solutions that focus on a future date that roughly matches that of your investment goal, like a child’s education or your retirement.

Within the portfolio, a professional investment manager oversees the asset mix over the entire timeline of the fund. Typically the asset mix begins with a peak allocation to equities and gradually becomes more conservative as the target date approaches. This incremental asset allocation shift is commonly referred to as a “glidepath.”

There are two paths that target date funds typically take:

  1. ‘Target to’ funds usually follow a glidepath that results in a 100% allocation to fixed-income securities as the target date approaches and then a 100% allocation to cash once the target date arrives.
  2. ‘Target through’ funds retain a meaningful allocation to equities past the target date.

Refining the target-date approach for retirement

In this environment of low yields and extended lifespans, a retirement portfolio that is invested in 100% cash or fixed income may not be the best approach. ‘Target through’ funds can allow for continued growth potential, reducing the possibility of running out of money during retirement.


For those just starting out

Increased market volatility in recent years may make those new to investing hesitant to take on the peak equity allocation that target-date funds typically start with. A recent innovation in target date funds incorporates a more conservative starting point (e.g. 50% equities), which allows investors to develop comfort with the markets before proceeding to a higher equity allocation. After a few years of exposure to equity markets, you’ll be ready for the equity allocation that matches your risk tolerance and investing time horizon, helping you meet your long-term financial goals.

The graph below compares traditional target-date glidepaths to the RBC Retirement Portfolios glidepath – an example of this new innovative approach – that both eases new investors into the equity markets and retains an equity allocation in retirement.

Target Date Asset Allocation



Source: RBC Global Asset Management. For illustrative purposes only.

Whether you’re 15 or 35 years from retirement, target-date funds that maintain equity exposure beyond your expected retirement date can enhance your ability to fund both your essential and lifestyle spending needs after you transition to your next life stage.

Talk to your advisor about whether a target-date solution is right for you.


This information has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes only. It is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. The information contained herein is from sources believed to be reliable, but accuracy cannot be guaranteed. Please consult your advisor and read the prospectus or Fund Facts document before investing. There may be commissions, trailing commissions, management fees and expenses associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. RBC Funds, BlueBay Funds and PH&N Funds are offered by RBC Global Asset Management Inc. and distributed through authorized dealers.

® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © RBC Global Asset Management Inc. 2017

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