Two Ways to Align Asset Allocation With Risk ToleranceMay 11, 2017
- Both T. Rowe Price ActivePlus Portfolios and T. Rowe Price target date funds offer professionally managed, diversified portfolios of mutual funds designed to meet specific retirement objectives.
- Each T. Rowe Price target date fund’s assets are adjusted to a more conservative mix as the fund approaches and passes its target date.
- With T. Rowe Price ActivePlus Portfolios, one of 10 model portfolios is recommended—with a required annual reassessment—based on an investor’s risk tolerance, time horizon, and personal circumstances.
Today’s investors have options when it comes to choosing among professionally managed, predetermined asset allocation strategies. T. Rowe Price target date funds and T. Rowe Price ActivePlus Portfolios are two examples of these offerings. If you're interested in one of these solutions for your investing needs, below is information on the product differences to help you with your selection.
Weighing your options
Both T. Rowe Price target date funds and T. Rowe Price ActivePlus Portfolios invest in underlying T. Rowe Price mutual funds. With T. Rowe Price target date funds, investors select a fund based on when they will turn age 65, and the fund automatically adjusts its allocation to reflect the passage of time. With T. Rowe Price ActivePlus Portfolios, one of 10 model portfolios is recommended based on answers to a six-question risk assessment that investors are required to revisit annually.
T. Rowe Price ActivePlus Portfolios
T. Rowe Price ActivePlus Portfolios are part of a digital discretionary investment program that invests your assets in one of 10 model portfolios based on information you provide when completing an online risk tolerance questionnaire. Each model portfolio invests in approximately eight to 13 T. Rowe Price mutual funds according to a predetermined asset allocation strategy. Any change in your target allocation stems from updates you make to your profile, at least annually (as required), or due to a major life event, such as a marriage, inheritance, or change in plans for retirement. You are responsible for notifying T. Rowe Price when your circumstances change, so that we can determine whether the particular managed account portfolio is still appropriate for your goals. Each of the 10 portfolios is monitored and rebalanced as needed to its target allocation, and the time horizon remains static unless the investor makes a change. Note that the T. Rowe Price ActivePlus Portfolios are subject to the risks associated with investing in mutual funds, which may result in loss of principal. T. Rowe Price does not guarantee the results of our investment management or that the objectives of the funds or the portfolios will be met.
T. Rowe Price target date funds
A T. Rowe Price target date fund is a collection of mutual funds designed to provide a diversified portfolio. Each of the 24 funds' (total of both suites of T. Rowe Price target date funds: Retirement Funds and Target Funds) allocations to underlying mutual funds is adjusted over time along a glide path that becomes progressively more conservative up to and beyond when an investor may begin withdrawing the assets.
T. Rowe Price target date funds and T. Rowe Price ActivePlus Portfolios both offer strategies to help you meet your retirement goals and are available for investment within an individual retirement account (IRA). In the end, the right choice for you depends on your personal circumstances.
Both T. Rowe Price target date funds and T. Rowe Price® ActivePlus Portfolios offer professionally managed, diversified portfolios of mutual funds to help you meet your retirement goals.
Understanding the differences between the two account strategies below can help inform your decision.
*You may request to restrict up to 3 funds from your portfolio at a time. By restricting a fund(s), you’re requesting us to replace that mutual fund with an alternative program fund within the same asset class (for example, U.S. large-cap growth, U.S. investment-grade fixed income, etc.). Keep in mind: Not all mutual funds within a portfolio have an acceptable alternative. In this scenario, we’ll contact you to review your options, which may include changing or removing the request or, in some cases, closing your account.
Exploring the Differences
A hypothetical investor is interested in funding a product with a predetermined asset allocation strategy.
Consider Anne, a hypothetical 46-year-old individual who has $50,000 to invest (the minimum required to fund a T. Rowe Price® ActivePlus Portfolio). First, she considers a T. Rowe Price Retirement Fund. Based on the year she will turn age 65, the Retirement 2035 Fund is the closest match. At her current age, the investment has an asset allocation of 88% equities and 12% fixed income along its glide path.
To further investigate her options, Anne then looks at the T. Rowe Price ActivePlus Portfolios. She answers the questions in the risk tolerance questionnaire—for example, in how many years will she need to begin withdrawing money; how long will she need assets in the account to last; and how has she reacted in the past when an investment lost value. Depending on her responses, Anne will receive a recommendation for one of the 10 ActivePlus Portfolios that corresponds with her time horizon and risk tolerance. The ActivePlus Portfolio recommended may have an asset allocation that's higher than, lower than, or the same as the current asset mix along the glide path for the Retirement 2035 Fund.
The T. Rowe Price® ActivePlus Portfolios is a discretionary investment management program provided by T. Rowe Price Advisory Services, Inc., a registered investment adviser under the Investment Advisers Act of 1940. Brokerage services are provided by T. Rowe Price Investment Services, Inc., member FINRA/SIPC. Brokerage accounts are carried by Pershing LLC, a BNY Mellon Company, member NYSE/FINRA/SIPC. T. Rowe Price Advisory Services, Inc., and T. Rowe Price Investment Services, Inc., are affiliated companies.
The principal value of the Retirement Funds and Target Funds (collectively, the “target date funds”) is not guaranteed at any time, including at or after the target date, which is the approximate year an investor plans to retire (assumed to be age 65) and likely stop making new investments in the fund. The target date funds’ allocations among a broad range of underlying T. Rowe Price stock and bond funds will change over time. The Retirement Funds emphasize potential capital appreciation during the early phases of retirement asset accumulation, balance the need for appreciation with the need for income as retirement approaches, and focus on supporting an income stream over a long-term postretirement withdrawal horizon. The Target Funds emphasize asset accumulation prior to retirement, balance the need for reduced market risk and income as retirement approaches, and focus on supporting an income stream over a moderate postretirement withdrawal horizon. The target date funds are not designed for a lump-sum redemption at the target date and do not guarantee a particular level of income. The key difference between the Retirement Funds and the Target Funds is the overall allocation to equity; although they each maintain significant allocations to equities both prior to and after the target date, the Retirement Funds maintain a higher equity allocation, which can result in greater volatility over shorter time horizons. Diversification cannot assure a profit or protect against loss in a declining market.