PLANADVISER - September/October 2017 - 35

impact of changing market dynamics
in a strategic sense, not on a tactical
basis.Many providers incorporate some
element of market insight into their
glide paths, but we had three concerns
over how this is typically done and
wanted to avoid those pitfalls.
Foremost, the majority of targetdate
fund managers who adjust their
glide paths do so on a tactical, monthly
basis. But these are lifecycle strategies,
meant to be held for the long term.
Attempting to add a few basis points
by trading in and out of the market on
a short-term basis, even if possible to
perform successfully, is inherently at
odds with the underlying philosophy of
target-date investment strategies.
Secondly, most programs are calibrated
too simplistically. Many, even
some of the largest in terms of AUM
[assets under management],
adjust
their asset allocations by +/-10%
anywhere along the entire glide path.
That naïve symmetry doesn't make
sense from a prudent investment
perspective. For example, adding 10%
to a stock position for a 25-year-old is
vastly different-in both risk and dollar
terms-than adding 10% to equities for
a 65-year-old.
Finally, all of these programs, ours
included, are probabilistic. The worst
offense you can commit in target-date
management is to put a retiree or nearretiree
deeper into risky assets (e.g.,
equities) at the wrong time. That decision,
if wrong, could hand the investor
a significant deadweight dollar
loss
precisely at the wrong time in their life
cycle.
To address
these
concerns, our
program makes a three-year assessment
of the markets and the fundamental
economic forces driving them,
such as unemployment and GDP [gross
domestic product] growth. Looking
longer
term and relying on fundamental
data increases our confidence
and accuracy.
Regarding calibration, our adjustments
are asymmetric; that is, we only
increase equity and risk allocation for
mid-career investors and younger,
and we only de-risk, or lower the
equity weight, for mid-career through
in-retirement investors. Our adjustments
encompass age, wealth level,
and risk tolerance, which we believe is
a significant improvement over other
target-date providers' glide path adjustYou
should consider the fund's investment objectives, risks, charges and expenses carefully
before you invest. The fund's prospectus or summary prospectus, which can be obtained
by visiting americancentury.com, contains this and other information about the fund, and
should be read carefully before investing.
A target-date is the approximate year when investors plan to retire or start withdrawing their money.
The investment's principal value is not guaranteed at any time, including at the target date. Each targetdate
portfolio seeks the highest total return consistent with its asset mix, which is adjusted to be more
conservative over time. In general, as the target year approaches, the portfolio's allocation becomes
more conservative by decreasing the allocation to stocks and increasing the allocation to bonds and
money market instruments.
This material has been prepared for educational purposes only. It is not intended to provide, and should
not be relied upon for, investment, accounting, legal or tax advice.
Investment return and principal value of security investments will fluctuate. The value at the time
of redemption may be more or less than the original cost. Past performance is no guarantee of
future results.
American Century Investment Services, Inc., Distributor
©2017 American Century Proprietary Holdings, Inc. All rights reserved.
Design glide path to increase certainty of
outcomes for participants by managing
multiple risks.
ment methodologies. This prevents
the potential damage from making the
wrong call into equities for a retiree.
In the context of balancing risks,
early on, we trade off longevity risk
for market risk, and later we trade off
sequence-of-returns risk for market
risk. We either delay the roll-down in
the glide path or accelerate it. We lean
bullish for younger investors or bearish
for older investors. This combination
could increase the investor's probability
of a successful retirement.
PA: How do you measure the success
of your approach?
WEISS: The way we measure our
success is: Have we maximized the
probability of a successful retirement
for the broadest number of particiFine
tune balance
of risks for changing
market environments.
pants? A key part of that objective is
to make sure we're reducing the possibility
of bigger drawdowns, the probability
of tail risk, and thereby increase
risk-adjusted returns.
Our aim is to show more consistency
and higher probability of successful
retirements for more people over time,
not just one lucky winner.
We liken target-date strategies to
marathons, because target-date funds
are meant to be held over years if not
decades. Our goal at American Century
is not to sprint and try to win the race
with the fastest time, which many
others in the field do, seeming to disregard
the subtler risks. We want to get
the most runners, the most investors,
to the finish line. ■
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http://www.americancentury.com

PLANADVISER - September/October 2017

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