Someone considering target date funds as an investment option.

Target-Date Funds: Helping you stay the course toward retirement

The coronavirus has affected so many aspects of our lives—including investing and the markets. If the fear and uncertainty currently driving the market is making it difficult for you to stay focused on your investment goals or feel confident about the future—we hear you.

Unsettling news headlines, combined with a seesawing stock market, may make you want to change your mix of investment options to help preserve that nest egg you’ve worked so hard for—especially if you’re nearing retirement.

But doing so could derail your long-term plans.

That’s where target-date funds (TDFs) can make a difference.

What’s a Target Date Fund?

Many people invested through their retirement plan have money invested in TDFs. These types of investment options have a broad diversification across asset classes. This means an investment professional has selected different types of investments within each asset class that, combined, help support the overall objective of the specific target date fund.

TDFs are designed with a simple “no-fuss” approach that is managed to and through its target date (that can be your retirement date).

Why you may want to stay invested.

Our data shows that during the financial crisis of 2008, 25% of investors holding near-retirement TDFs cashed out and abandoned their investment strategy—but they ultimately missed out on the market recovery that followed.

Check out this example from the extreme volatility the economy experienced back then to see how investments could’ve performed in a “safe” option (CD) vs. staying in the market. (Spoiler alert: Those who stayed in the market could’ve had about $53,000 more over five years.)

Generally, the further away from retirement you are, the more risk you can assume, and the greater your percentage of equity to fixed income can typically be. As a “target date” (aka your retirement date) approaches, your investment mix automatically shifts toward typically more conservative options such as bonds.

Graphic of a thumbtack. Tip: Have a TDF with Principal®? Your asset allocation within the selected target date fund will get generally more conservative for 15 years after fund’s target date—tailoring to your investment needs as you age, whether you choose to retire “on time” or later. Log in and use our Retirement Wellness Planner to help bring your picture of retirement into focus.

TDFs and today’s volatile markets

But what about today’s stock market? How can a TDF help when the market experiences heightened turbulence?

TDFs generally strive to create a balance between risk and reward. Whenever your investment mix starts to drift away from its target allocation it will be automatically rebalanced.

What's target allocation?

That's how money in your account has been divided among investments from various asset classes based on retirement goals, risk tolerance, and time horizon of that target date fund.

In a down market, that means a TDF will generally buy low to restore its allocation to equities; in a rising market, it will generally sell high. In this way TDFs help make the most of the applicable market condition—and help you stay the course—by maintaining a level of risk that can be appropriate for the long-term goals and objectives for a specific target date fund (again, which can align with a target date you chose). 

During times like these, when it seems all investments are declining, TDFs may help soften the effects through diversification. That said, there is no guarantee this will ensure a profit or protect against a loss.

Another plus: Most of us don’t have the time, training, or desire to follow the markets and economy on a regular basis, and then make investment decisions based on that information. That’s why TDFs can be a good option.

TDFs are overseen by a team of professional investment managers who design asset allocations that seek to be generally more conservative over time and take into account market moves and economic developments for a living. They put their knowledge and expertise to work for you every day—and measure their success by helping to keep you on the road to retirement.

What’s next?

Target date portfolios are managed toward a particular target date, or the approximate date the investor is expected to start withdrawing money from the portfolio. As each target date portfolio approaches its target date, the investment mix becomes more conservative by increasing exposure to generally more conservative investments and reducing exposure to typically more aggressive investments. Neither the principal nor the underlying assets of target date portfolios are guaranteed at any time, including the target date. Investment risk remains at all times. Asset allocation and diversification do not ensure a profit or protect against a loss. Be sure to see the relevant prospectus or offering document for full discussion of a target date investment option including determination of when the portfolio achieves its most conservative allocation.

Carefully consider the Fund’s objectives, risks, charges and expenses. Contact your financial professional or visit for a prospectus, or summary prospectus if available, containing this and other information. Please read it carefully before investing. For additional information, contact us at 800-547-7754 or by visiting

Investing involves risk, including possible loss of principal.

Asset allocation and diversification does not ensure a profit or protect against a loss. Equity investment options involve greater risk, including heightened volatility, than fixed-income investment options. Fixed-income investments are subject to interest rate risk; as interest rates rise their value will decline. International and global investing involves greater risks such as currency fluctuations, political/social instability and differing accounting standards. These risks are magnified in emerging markets. Small and mid-cap stocks may have additional risks including greater price volatility.

There is no guarantee that a target date investment will provide adequate income at or through retirement. Participants may also choose a portfolio with a target date that does not match the intended retirement date. Compare the different portfolios to see how the mix of investments might shift.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

The Retirement Wellness Planner information and Retirement Wellness Score are limited only to the inputs and other financial assumptions and is not intended to be a financial plan or investment advice from any company of the Principal Financial Group® or plan sponsor. This calculator only provides education which may be helpful in making personal financial decisions. Responsibility for those decisions is assumed by the participant, not the plan sponsor and not by any member of Principal®. Individual results will vary. Participants should regularly review their savings progress and post-retirement needs.

Insurance products and plan administrative services provided through Principal Life Insurance Co. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities offered through Principal Securities, Inc., 800-547-7754, member SIPC and/or independent broker-dealers. Principal Life, Principal Funds Distributor, Inc. and Principal Securities® are members of the Principal Financial Group®, Des Moines, IA 50392. Certain investment options may not be available in all states or U.S. commonwealths.

Principal, Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.