The importance of fixed income to the glide path | Capital Group

Defined Contribution Insights

February 2019

The importance of fixed income to the glide path

Equity may be the primary driver of target date returns, but fixed income decisions can have a significant impact on a target date series’ results.

At Capital Group, home of American Funds, we believe bonds anchor the glide path by seeking to provide capital preservation, income, diversification from equities and targeted inflation-hedging.

The types of fixed income shift as participants progress:

  • U.S. government securities in the early accumulation stages to dampen equity volatility,
  • Higher-yielding bonds in the transition stage to expand income potential,
  • Tactical flexibility through the use of multi-asset funds to adjust the equity and fixed income mix based on market conditions, especially at or near the target date,
  • High-yield, non-U.S. bonds and Treasury Inflation-Protected Securities (TIPS) during the distribution stage to provide diversified sources of income potential.

Our measured approach to fixed income can be seen in our American Funds Target Date Retirement Series®:

  • Active bond management seeks to avoid “index drift” through adjustments in duration, credit selection and sector exposures as the rate outlook and issuance patterns change.
  • Use of underlying bond funds that adhere to their stated objectives avoids the temptation to reach too far out on the risk spectrum for yield or total return.
  • Emphasis on high-quality short- and intermediate-duration strategies provides higher potential levels of capital preservation and equity diversification.

When evaluating fixed income in a target date series, it’s important to determine whether the underlying funds’ risk-return profile aligns with the fund’s intended role in the glide path. Examine a fund’s asset mix and equity correlation to assess whether it is staying true to its objectives.

The glide path’s underlying funds, as well as the fund allocation percentages, are subject to the Portfolio Oversight Committee’s discretion and will evolve over time. Underlying funds may be added or removed during the year. Portfolio managers of certain underlying funds have the discretion to invest among multiple asset classes, such as stocks and bonds, or U.S. and non-U.S. equities; therefore, the asset class mix of the target date series will change over time, depending on managers’ future investment decisions.


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. 

The return of principal for bond portfolios and for portfolios with significant underlying bond holdings is not guaranteed. Investments are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings. Lower rated bonds are subject to greater fluctuations in value and risk of loss of income and principal than higher rated bonds. While not directly correlated to changes in interest rates, the values of inflation-linked bonds generally fluctuate in response to changes in real interest rates and may experience greater losses than other debt securities with similar durations. 

Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility. These risks may be heightened in connection with investments in developing countries. 

Interests in Capital Group’s U.S. Government Securities portfolios are not guaranteed by the U.S. government.

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. 

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.