Fund manager T. Rowe Price Associates said recently that it has expanded its lineup of target-date retirement funds to 10, as assets in those funds have risen tenfold since 2003, eclipsing the $5 billion mark.
Baltimore-based T. Rowe's latest offering, the Retirement 2045 Fund, is a fund-of funds designed for those individuals who plan on retiring that year. The fund's targeted asset allocation is comprised of 93% stocks and 7% bonds, the company said in a press release.
"Based on proprietary asset allocation models that factor in a 30-year period in retirement, as well as research that incorporates Monte Carlo simulations, our asset allocations tend to emphasize equities, particularly early in retirement," said Ned Notzon, chairman of the investment advisory committee that oversees the T. Rowe Price Retirement Funds.
"This should help protect investors from inflation risk and the likelihood of depleting their assets before the end of retirement," Notzon continued.
The move capitalizes on the increasing popularity of target-date retirement funds in 401(k) plans and for IRA rollovers. These funds are appealing because the investor does not have to worry about managing their asset-allocation strategy over time - or making tactical adjustments in response to changing market conditions, Notzon noted. Since the end of 2003, T. Rowe's total assets under management in its target-date funds have risen tenfold.
Each of its T. Rowe's 10 target-date retirement funds are structured as fund-of funds that invest in up to 12 other T. Rowe Price mutual funds. However, their asset allocation varies depending on their time horizon for retirement. A fund with a longer time horizon, like other types of lifecycle or "lifestyle" funds, emphasizes growth, while funds with shorter time horizons are more conservative.
The funds' portfolio managers periodically rebalance their portfolios, in order to maintain the desired risk profile and prevent style drift.