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Two ways to drive your investments

Understanding the difference between target-date and target-risk funds

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If you could get where you want to go with a self-driven car, would you take it? Or do you prefer setting your own pace with cruise control? Knowing your options can help you choose the best way to get to your destination safely and on time. The same is true when choosing portfolio solutions, also referred to as funds-of-funds or asset allocation funds. In this article we will examine two different types of portfolio solutions: target-risk and target-date funds.

How your target date changes your asset mix

Target date asset allocation chart

This chart shows your portfolio could shift from as much as 65% equities to more conservative investments as you head toward retirement.

Target-date funds: driving your investments by date

Target-date mutual funds are a little like self-driving cars – you jump in, choose your destination and let the car choose the route based on weather, current traffic, speed limits and, of course, your desired end point. In the car, a sophisticated computer system makes all the decisions for you. In the case of your target-date fund, it’s an experienced portfolio management team.

Target-date funds allow you to drive toward your investment goals with a specific date in mind - a planned cottage purchase, a child’s education, or your retirement date. Here’s how it works.

Let’s say your child is planning to go to university in 2030. Target-date funds (in this example, one with a target date of 2030) feature an asset mix that evolves over time, with a greater weighting in equities in the early years and a more conservative asset mix favouring fixed income investments as the target date approaches. The advantage is an investment that provides growth potential up front and, as the target date approaches, the asset mix becomes gradually more conservative – protecting your money by shifting from stocks and other equity investments to bonds or cash. Ultimately, by 2030, when you need the funds to pay for your child’s tuition, the portfolio will hold 100% cash. This change in asset mix over time is referred to as the glide path.

This approach can be applied to any long-term financial savings goal, including retirement. Some target-date funds incorporate a glide path that goes beyond the target date to provide ongoing growth potential and income, therefore taking you to – and through – your retirement. The path is adjusted to your specific savings goal and the date you will need your money. But in each case, the target-date fund knows where you are going and is designed to get you there efficiently.

How your risk profile can change your asset allocation

This chart shows how your investment mix would differ based on your risk profile. Your risk profile may change as your situation changes, in which case you may need to choose a different investment mix.

Target-risk funds - setting your own pace

Target-risk mutual funds are a little like using cruise control in your car – you are responsible for keeping an eye on the road and getting to the destination, but you pick the speed and let the system keep that pace until you decide to change it.

The first thing an investor must do is determine their risk profile, based on their personal situation, investment goals and timeline. Once you determine which target-risk fund is right for you, the portfolio management team drives your investments for you based on your chosen risk profile. They adjust your portfolio to stay aligned with that profile through all the ups and downs of the market. This keeps you on track to reach your investment goals without taking on more risk than you are comfortable with.

Getting where you need to go

Every time you get in a car, you have to decide where you’re going and how you’re going to get there. Every investment decision should start with the same questions. What are your goals and how are you going to achieve them?

To help you decide what’s right for you, here are a few key differences between target-date and target-risk funds:

Target-date funds

  • Designed to help you reach a long-term financial objective with a specified date
  • Asset allocation is adjusted based on changes in the market environment and the portfolio, and becomes more conservative as your target date approaches
  • Doesn’t require you to make any decisions throughout the life of the investment
  • Typically used for specific savings goals

Target-risk funds

  • Designed to stay consistent with your chosen risk tolerance
  • Asset allocation is adjusted based on changes in the market environment to keep risk at the level you prefer
  • If your risk profile changes, a different target-risk fund could be more appropriate
  • Can be used for any savings goals

To learn more about what type of fund works best for you, talk to an advisor.


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.

This 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. RBC GAM takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when provided. Information obtained from third parties is believed to be reliable but RBC GAM and its affiliates assume no responsibility for any errors or omissions or for any loss or damage suffered. RBC GAM reserves the right at any time and without notice to change, amend or cease publication of the information.

® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © RBC Global Asset Management Inc. 2019

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