Downside resilience can help preserve wealth | Capital Group

Defined Contribution Insights

Downside resilience can help preserve wealth

The recent correction in the U.S. equity market reinforced the importance of downside resilience in a target date series.

We regularly look at how our target date series has performed during challenging markets, especially relative to peers. The chart below shows all bear markets and corrections since the series’ launch on February 1, 2007.

Rich Lang Investment Director Los Angeles office 25 years of experience (as of 12/31/2018)

American Funds Target Date Retirement Series® in down markets Peer rankings of the series during periods in which the Standard & Poor’s 500 Composite Index declined at least 10% (peak to trough), Class R-6 shares:

chart-aftd-heat-map-1Q18-970x441

Data as of March 31, 2018. Source: Capital Group, based on data from Morningstar. A bear market is defined as a cumulative decline of 20% or more of the S&P 500 Price Return Index from peak to trough on a total return basis. A correction is defined as a cumulative decline of the S&P 500 Price Return Index of 10% to 20% from peak to trough. Average Percentile Rank represents an equal-weighted average of Morningstar category percentile ranks of all vintages of the series. Percentile ranks shown are based on Class R-6 shares starting with July 13, 2009, and Class A shares prior to that. See rankings for 1-, 5- and 10-year periods below.

Strong results in downturns

  • Despite having above-average equity exposure over much of that span, the series overall generally held up well in down markets.
  • Over five corrections and one bear market, the series generally produced results in the top third of peers.

Bear market 2008 – A change in strategy

  • To help reduce the volatility experienced during this period, the Portfolio Oversight Committee decided to reduce their equity exposure.
  • This change was implemented at the end of 2009, after equity markets had rebounded meaningfully from their lows.

A glide path seeking to grow and preserve wealth

We believe our glide path construction, strong underlying funds and low fees have contributed to the series’ strong results relative to peers during these downturns. Several of the series’ underlying equity and fixed income funds have shown a degree of resilience in down markets.

The series’ glide path also seeks to preserve wealth during difficult equity markets by moving to historically less volatile fixed income and dividend-paying equities as participants approach and enter retirement. This broadly diversified nature of the funds has helped them weather challenging market environments.

Morningstar Rankings as of March 31, 2018:

Morningstar rankings are based on the funds’ average annual total returns (Class R-6 shares at net asset value) within the applicable Morningstar categories. The Morningstar rankings do not reflect the effects of sales charges, account fees or taxes. Past results are not predictive of results in future periods. Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The Morningstar category average includes all share classes for the funds in the category. ©2018 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

While American Funds R-6 shares do not include fees for advisor compensation and service provider payments, the share classes represented in the Morningstar category have varying fee structures and can include these and other fees and charges resulting in higher expenses. When applicable, investment results reflect expense reimbursements, without which results would have been lower. Please see americanfunds.com for more information. The investment adviser is currently reimbursing a portion of other expenses for each share class of American Funds 2060 Target Date Retirement Fund®. The reimbursement will be in effect through at least January 1, 2019, unless modified or terminated by the investment adviser. Investment results reflect the reimbursement, without which the results would have been lower.

The relevant Morningstar categories and American Funds Target Date Retirement Series funds are as follows: 2060+ category for the 2060 fund; 2055 for the 2055 fund; 2050 for the 2050 fund; 2045 for the 2045 fund; 2040 for the 2040 fund; 2035 for the 2035 fund; 2030 for the 2030 fund; 2025 for the 2025 fund; 2020 for the 2020 fund; 2015 for the 2015 fund; and 2000–2010 for the 2010 fund.


Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

Although the target date portfolios are managed for investors on a projected retirement date time frame, the allocation strategy does not guarantee that investors' retirement goals will be met. The target date is the year that corresponds roughly to the year in which an investor is assumed to retire and begin taking withdrawals. Investment professionals manage the portfolio, moving it from a more growth-oriented strategy to a more income-oriented focus as the target date gets closer. Investment professionals continue to manage each portfolio for approximately 30 years after it reaches its target date. 

American Funds Distributors, Inc., member FINRA.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation. 

Past results are not predictive of results in future periods.