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How our Target Date Series manages inflation risk
Rich Lang
Multi-Asset Investment Director
Polina Tsybrovska
Multi-Asset Product Manager

 


Managing the impact of inflation for investors is an important consideration of any target date series and is increasingly in focus amid an increase in the U.S. inflation rate to multi-decade highs. This paper describes how the American Funds Target Date Retirement Series® addresses inflation risk and how this approach may be well suited to the uncertainty of the current environment.

Key takeaways:

  • For early career participants, a meaningful equity allocation has been a prudent way to pursue capital appreciation at a rate that has historically outpaced inflation by a significant margin

  • In the transition to retirement, a dedicated allocation to inflation-linked bonds becomes more important to align with the objective of preserving purchasing power

  • Underlying fixed income and balanced fund managers have the ability to shift the “inflation duration” of holdings across the yield curve to remain sensitive to changes in inflation
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Rich Lang is a multi-asset investment director at Capital Group. He has 30 years of investment experience (as of 12/31/2023), all with Capital. He holds master's and bachelor's degrees from Loyola Marymount University.

Polina Tsybrovska is a multi-asset product manager with 13 years of experience (as of 12/31/2023). She holds a bachelor’s degree in finance from the University of Illinois at Chicago.

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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. 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. 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 continue to manage each portfolio for approximately 30 years after it reaches its target date.

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