Download Report

Timewise Target Retirement Funds™
Frequently Asked Questions & Glossary
Timewise Target Retirement Funds™
Frequently Asked Questions
What is a Target Retirement Fund?
A Target Retirement Fund (sometimes called a target date fund) is an investment strategy based on
retirement investing principles that are designed to be pretty simple to understand: diversify your
investments and manage them in relation to where you are in your retirement planning timeline.
A Target Retirement Fund is a diversified selection of investments (typically stocks and bonds)
that automatically adjust risk levels (that are designed to become more conservative) as the fund
approaches it’s target retirement date. The fund in which you invest is selected according to the date
you anticipate to retire.
How does a Target Retirement Fund work?
Here’s an example:
The year is 2010 and Jane, age 35, starts a new job. Because she hopes to retire in 2040 at age 65,
she chooses the 2040 Target Retirement Fund. As illustrated below, when Jane first invests in this Fund
it contains more stocks than bonds. In investor terms that means she is “taking on more risk,” because
stocks have more risks of ups and downs than bonds or cash. But, as Jane gets older, the fund evolves
to contain fewer stocks and more bonds to reduce that risk. And by the time she is ready to retire,
Jane’s portfolio is about half stocks and half bonds – giving her income while reducing her risk.
n Stocks (including commodities)
n Bonds
The example shown is intended
for illustrative purposes only. The
allocation will vary depending on
the fund.
30 years
to retirement
20 years
to retirement
10 years
to retirement
Target retirement
date reached
5 years after
target retirement date
Finally, when Jane turns 70, her portfolio will contain the lowest number of stocks/highest number of
bonds of all the Funds to help protect it from jolts in the stock market.
Remember, there are always risks involved with investing and it is nearly impossible to predict market
returns. However, the Timewise Target Retirement Funds seek to manage these risks over time while
still allowing investors the opportunity to capture market returns.
Frequently Asked Questions
How is a Target Retirement Fund different than a
balanced fund?
While a balanced fund also has a mix of investments, that mix doesn’t change unless you move your
investments to a different balanced fund. For example, if you invest in a 60/40 balanced fund (60%
stocks and 40% bonds), the mix of investments will always be managed to a 60/40 target. A Target
Retirement Fund will evolve with your changing needs dependent on the target retirement date of the
the fund, and automatically adjust risk levels (become more conservative) as you near retirement.
Should I choose more than one Target Retirement Fund?
It’s not necessary to do that with a Target Retirement Fund. The Fund automatically creates a
diversified mix of investments for you – so that you don’t have to do it yourself. As always, remember to
check your investments regularly, even with a target retirement fund, to make sure that they continue to
meet your saving goals.
What does the year in the Target Retirement Fund mean?
In general, the year indicates when – or close to when – you plan to retire. For example, if you plan to
retire in 2029, you would choose Target Retirement Fund 2030. If you’re planning to retire in 2036, you
would choose the fund dated 2035.
Are Timewise Target Retirement Funds suitable for my risk
tolerance level?
Timewise Target Retirement Funds are designed to work for most risk tolerance levels. Remember,
risk is based on your retirement goals and timelines. If you have specific circumstances that require
a different risk level than indicated in your target retirement year, consult an Independent Financial
Advisor or your company pensions team about how to best meet your goals. The Timewise Target
Retirement Funds are not tailored to an individuals personal requirements but are instead designed to
provide a balance between capital growth and capital preservation. The funds take into account what
investments the investment manager believes are typically appropriate for an investor in a UK pension
fund, retiring on the target retirement date of the fund.
Which Target Retirement Fund should I choose?
Typically you should choose the Target Retirement Fund that comes closest to your retirement date.
For example if you hope to retire in 2029, choose Fund 2030. If you have specific circumstances
that require a different risk level than indicated in your target retirement year, consult an Independent
Financial Advisor or your company pensions team about how to best meet your goals.
Frequently Asked Questions
What investments are in the Target Retirement Fund?
The Fund is primarily invested in a diversified, professionally-managed portfolio of stocks and bonds.
These investments may include: UK and International stocks (including emerging market stocks), gilts,
corporate bonds, emerging market bonds, high yield bonds and investments giving returns linked to the
performance of commodities, infrastructure and real estate assets.
What is the Target Retirement Fund’s “glidepath?”
The glidepath is the ‘recipe’ for the mix of stocks and bonds (the asset allocation) for the Fund and is
based on the number of years to the target retirement date. The more years to retirement, the more
aggressive the glidepath will generally be towards investing in stocks. As your target retirement year
approaches, the glidepath is designed to become more conservative, shifting out of stocks and moving
more into bond or fixed income assets.
Can I move my money from the Target Retirement Fund
even if it has not reached the designated Target
Retirement Fund year?
Yes, you can move your money to any other investment option within your pension plan at any time.
What if my retirement plans change?
As always in your pension plan, you can easily make changes to your contribution rates or Target
Retirement Fund choices. If your retirement plans do change, consider selecting a Target Retirement
Fund that matches your new anticipated retirement date.
If I retire, can I withdraw my savings from the Target
Retirement Fund even if it has not reached its designated
year?
Yes, you can withdraw your money at any time. For example, if you are invested in Target Retirement
Fund 2030 and you retire in 2025, you can withdraw your money.
Who manages the Target Retirement Fund?
State Street Global Advisors manages the Fund. State Street Global Advisors is one of the world’s largest
institutional asset managers and has been managing retirement money for over 30 years.
Is my money safe in a Target Retirement Fund?
All investing involves risk. However, one of the main principles of managing risk is diversification, and
a Target Retirement Fund is a well-diversified investment. Diversification does not ensure a profit or
guarantee against a loss.
Glossary of Financial Terms
Annuity
An insurance policy that you buy with the value of your
individual account at retirement. The annuity will pay you an
annual pension until you die. You can personalise your annuity
at retirement. For example, if you would like the pension to
increase and/or to provide a dependant’s pension in the event
of your death.
Bond
Bonds — also known as fixed income securities — are a type of
investment issued by governments, corporations or other entities
that typically pay interest at fixed intervals for a defined period of
time.
Commodities
Commodities are hard assets ranging from wheat to gold to
oil. Exposure to the prices of these commodities and the firms
engaged in their production is gained via the stock market.
Equity
Another term for ‘stock’. It’s the ownership interest of a particular
company or industry.
Diversification
A strategy designed to manage risk and income potential by
spreading your savings – asset allocation – across a variety of
investments (e.g. cash, stocks, bonds) within a portfolio.
Fixed Income
Another term for bonds, an investment issued by governments,
corporations or other entities that typically pay interest fixed
intervals for a defined period of time.
Fund
An investment that is made up of a variety of different securities
to reduce risk. A target retirement fund is made up of a broadly
diversified mix of investments, stocks, bonds and cash.
Gilts
Bonds that are issued by the British Government.
Glidepath
The change of asset allocation (the mix of stocks , bonds
and other investments) within a target retirement fund as you
approach retirement.
High Yield
A bond with a lower credit rating than investment-grade corporate
bonds. Because of the higher risk of default, these bonds pay a
higher yield than investment grade bonds.
Glossary of Financial Terms
Independent Financial
Advice
By law, the Trustee and the Company can’t give you advice
on choosing your investments. If you’re at all uncertain, you might
want to talk to an Independent Financial Adviser (IFA). You can
find a local IFA at www.unbiased.co.uk
Inflation
The increase in price for goods and services and fall of purchasing
power.
Infrastructure
Infrastructure refers to the physical structures that support a
country’s economy e.g. roads, bridges, telecommunication
towers, etc.
Liquidity
The degree to which an asset can be converted to cash.
Money Market
A segment of the financial market that trades short-term debt
securities. Certificates of deposit (CDs), U.S. Treasury bills,
commercial paper, and municipal notes are typical examples of
money market securities.
Portfolio
A range of investments such as stocks, bonds and cash
equivalents that are owned by an individual investor and/ or
managed by a financial professional.
Real Estate
Real estate refers to land and buildings and the profession of
buying, selling or renting these.
Rebalance
Adjusting a portfolio by buying or selling investments to reestablish a targeted asset mix.
REIT (Real Estate
Investment Trust)
A type of security that invests in real estate holdings such as
commercial or personal property and mortgages secured by real
estate. REITs receive favorable tax designations and often offer
high yields to investors.
Risk
The possibility of investment loss.
Security
The ownership of stocks, bonds or derivative contracts.
Stock
Stock is also known as an equity. It’s the ownership interest of a
particular company or industry.
Timewise Target
Retirement Fund
A pre-mixed, diversified selection of investments (typically
stocks and bonds) that automatically adjusts risk levels as you
near retirement.
Time Horizon
The length of time over which you expect to keep the security
invested to reach your retirement goal.
Volatility
A measure of the ups and downs in performance for a given
security or market index. In general, riskier securities tend to have
higher volatility.
Investing involves risk including the risk of loss of principal.
Please note that the Trustees, the Pensions Department and the Telegraph Media Group are not regulated to provide any form of financial advice. This
information is provided for your guidance only and the Trustees strongly recommend that you seek professional advice when making important financial
decisions.
Diversification does not ensure a profit or guarantee against loss.
Timewise Target Retirement Funds are designed for investors expecting to retire around the year indicated in each fund’s name. When choosing a fund,
investors should consider whether they anticipate retiring significantly earlier or later than age 65 even if such investors retire on or near a fund’s approximate
target date. There may be other considerations relevant to fund selection and investors should select the fund that best meets their individual circumstances
and investment goals. The funds’ asset allocation strategy becomes increasingly conservative as it approaches the target date and beyond. The investment
risks of each fund change over time as its asset allocation changes.
Risk associated with equity investing include stock values which may fluctuate in response to the activities of individual companies and general market and
economic conditions.
Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates rise bond values and yields usually fall);
issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security
sold or redeemed prior to maturity may be subject to a substantial gain or loss.
Asset allocation is a method of diversification which positions assets among major investment categories. This method is used in an effort to manage risk and
enhance returns. It does not, however, guarantee a profit or protect against loss.
Investing in foreign domiciled securities may involve risk of capital loss from unfavorable fluctuation in currency values, withholding taxes, from differences in
generally accepted accounting principles or from economic or political instability in other nations.
Investments in emerging or developing markets may be more volatile and less liquid than investing in developed markets and may involve exposure to
economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries.
Investing in high yield fixed income securities, otherwise known as junk bonds, is considered speculative and involves greater risk of loss of principal and
interest than investing in investment grade fixed income securities. These Lower-quality debt securities involve greater risk of default or price changes due to
potential changes in the credit quality of the issuer.
Government bonds and corporate bonds generally have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns.
Increases in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation-protected debt securities
can be unpredictable.
Investing in commodities entails significant risk and may not be appropriate for all investors as commodity prices can be extremely volatile due to wide range
of factors. A few such factors include overall market movements, real or perceived inflationary trends, commodity index volatility, international, economic and
political changes, change in interest and currency exchange rates.
Assumptions and forecasts used by SSGA in developing the Portfolio’s asset allocation glide path may not be in line with future capital market returns and
participant savings activities, which could result in losses near, at or after the target date year or could result in the Portfolio not providing adequate income at
and through retirement.
Investing in Real Estate Investment Trusts (REITs) involves certain distinct risks in addition to those risks associated with investing in the real estate industry in
general. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the
quality of credit extended. REITs are subject to heavy cash flow dependency, default by borrowers and self-liquidation. REITs, especially mortgage REITs, are
also subject to interest rate risk (i.e., as interest rates rise, the value of the REIT may decline).
All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State
Street shall have no liability for decisions based on such information.