Target date funds

Target date funds are a type of asset allocation fund that is rebalanced over time to become more conservative as retirement approaches. To find one that may work for you, look for the year in the fund’s name and select the year closest to when you hope to retire. 

These funds invest in a wide variety of underlying funds to help reduce investment risk. So, in addition to the expenses of the target date funds, you pay a proportionate share of the expenses of the underlying funds. Target date funds are designed for people who plan to withdraw funds during or near a specific year. Like other funds, target date funds are subject to market risk and loss. Loss of principal can occur at any time, including before, at or after the target date. There is no guarantee that target date funds will provide enough income for retirement.

Learn more about how target date funds work.

Asset allocation funds

Asset allocation funds are rebalanced to maintain a specific level of risk (conservative, moderate or aggressive), and you should select an investment option that aligns with your investing personality.

You can discover your investing personality by trying the My Investment PlannerSM tool.

What is asset allocation?

Asset allocation is a strategy for investment selection. Simply put, it is the process of diversifying your investment dollars across different asset categories. It enables you to increase your return potential while reducing your risk of losing money.

How your investments are diversified depends on your willingness to accept a degree of risk. In general, the greater the risk, the greater the potential return. By diversifying a portfolio, you can pursue attractive performance potential while simultaneously spreading out your investment risk. Though this is generally perceived to be a smart approach, remember that asset allocation and diversification do not guarantee profits or ensure against a loss in a declining market.

You may select different investment strategies for your before-tax money and your Roth money. However, if you use the Nationwide ProAccount® managed account service, you will not have the ability to manage your before-tax and Roth dollars separately.

How important is asset allocation to your investment success?

Industry research has shown that approximately 90% of the volatility of a portfolio is determined by asset allocation.1

In short, while picking specific investments and deciding when to buy and sell those investments can have an impact on your overall return, a well-diversified portfolio may be the critical factor in determining how well your portfolio performs in the long run.

A personal asset allocation strategy is composed of 2 key elements:

Your time horizon — This weighting will vary depending on the number of years your money can remain invested. A shorter horizon, for example, generally calls for a more conservative portfolio strategy.

Your risk tolerance — This weighting measures your tolerance for market fluctuations. For example, an aggressive portfolio may not be suitable for a person with a low tolerance for risk, even if she or he has a long-term time horizon.

Investment categories and risk

What do terms such as large cap, small cap and bonds mean? How can I use this knowledge to manage my risk?

[1] "Determinants of Portfolio Performance," Gary P. Brinson, L. Randolph Hood and Gilbert L. Beebower, Financial Analysts Journal (July-August 1986).