Investment Options Explained
A group retirement plan typically offers several types of investment options, each suited to a different level of involvement - from fully hands-off to fully self-directed. Understanding how they differ gives employers a practical way to support different investment objectives, risk tolerances, and stages of retirement planning.
Target Date Funds
Target date funds are diversified investment funds designed around an expected retirement year. They automatically adjust the investment mix over time, gradually becoming more conservative as the target date approaches. Employees typically select the fund closest to their expected retirement year, providing a simple, professionally managed investment option that simplifies ongoing investment decision-making. Some of the key factors include:
• Professionally managed portfolio.
• Broad diversification across asset classes.
• Simple investment selection.
• No need to choose individual funds.
• Automatic portfolio adjustments over time.
• Reduces risk as retirement approaches.
• Designed to align with retirement timing.
Target Risk Funds
Target risk funds are diversified investment funds designed around a specific level of risk. They maintain an investment mix that reflects the selected risk profile over time. Employees typically select the fund that best matches their risk tolerance and investment objectives, providing a simple, professionally managed investment option. Members should periodically review their risk profile and adjust their fund selection as retirement approaches. Some of the key factors include:
• Professionally managed portfolio.
• Broad diversification across asset classes.
• Simple investment selection.
• No need to choose individual funds.
• Maintains a consistent risk profile.
• Requires periodic review over time.
• Designed to align with personal risk tolerance.
Individual Funds
Individual funds allow employees to build their own portfolio by selecting from the investment options available under the plan. This provides greater flexibility over how their retirement portfolio is structured. Employees can choose and combine funds based on their investment objectives, risk tolerance, and time horizon. The available options usually span a range of asset classes:
• Guaranteed Interest Accounts
• Money Market
• Fixed Income
• Balanced
• Canadian Large Cap
• Canadian Small / Mid Cap
• U.S. Equity
• International Equity
• Global Equity
• Special Equity
Investment choice and understanding should work together.
The range of options available often depends on the size and structure of the plan. Smaller plans typically use a standard investment lineup, while larger plans can typically select from a broader range of funds with guidance from their Consultant. A plan that provides a thoughtful range, paired with education so employees understand their choices, helps people engage with investment selection and feel more confident.
