In our exploration of “what is a glide path” we touched on their basic premise: to represent asset allocation over time for a Target Date Fund (TDF). Traditionally, when viewing a single glide path, the vertical (Y) axis represents equity exposure and, at times, can show a stacked area chart of overall asset allocation.
By Will McGough on October 25, 2019
In our exploration of “what is a glide path” we touched on their basic premise: to represent asset allocation over time for a Target Date Fund (TDF). Traditionally, when viewing a single glide path, the vertical (Y) axis represents equity exposure and, at times, can show a stacked area chart of overall asset allocation. To view our post on asset classes please click here.
Asset managers who produce TDF products can often complicate things by not reaching consensus on ideal asset allocations (i.e. what someone’s equity exposure should be). Now who would have thought that? Still, this is the beauty of TDFs. You can access various highly skilled investment pros’ views on asset allocation. Unfortunately, most 401(k) plan participants only get access to one.
Adding to the confusion, TDFs became classified based on their glide paths some time ago. That classification, based on the amount of equity (i.e. height of the Y-axis) of the glide path, was determined upon whether that particular TDFs was to someone’s retirement or through retirement to some point beyond a person’s planned retirement date.
As we view all of these glide paths together a better picture emerges. While it may look like spaghetti thrown against the wall, the image we see is more like a downhill road winding through the Swiss Alps. It’s got guardrails on the sides to keep you from flying off the road.
What’s really happened is traditional TDF nomenclature can be thrown out of the window.
We’ve taken the collective wisdom of all these TDF investment pros—which has set what is considered acceptable asset allocation bounds for retirement investors—and can now move those bounds away from ‘to’ or ‘through’ and into a traditional risk spectrum so familiar to many of us.
Traditionally, conservative investors should take on less risk to accomplish their goals and, conversely, those who prefer volatility should be open to a higher risk-reward ratio. Sure, it doesn’t always work out that way, but we believe investor preference can now be accurately accounted for.
Instead of assuming everyone with the same time horizon is comfortable with the same asset allocation, our asset allocation is designed to be tailored to the uniqueness of each person.
Author: Will McGoughChief Investment Officer of Retirement Will McGough joined Stadion Money Management in 2003 and currently serves as Chief Investment Officer of Stadion’s Retirement investment strategies which comprises oversight of Stadion’s risk-based, target date, and managed account strategies. He is a member of the Investment Committee and Senior Management team, and serves as as Stadion’s Chief Investment Officer, Retirement. He provides thought leadership for Stadion’s participant level, customized retirement solutions, in order to ensure that its glide path technology and asset allocation are able to support all intermediaries in the defined contribution ecosystem. Will received his BBA in Finance from the University of Georgia and also holds the Chartered Financial Analyst designation. Will is a member of the CFA Institute, the CFA Society of Atlanta, the American Association of Professional Technical Analysts, National Association of Active Investment Managers, the UGA Alumni Association and National Eagle Scout Association.
There is no guarantee of the future performance of any Stadion account. Material has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Results based on available universe of Target Date Fund Series, which includes registered mutual funds, and non-registered collective investment funds and insurance accounts. Collective investment funds and insurance accounts are only available for investment to qualified retirement plan assets such as 401(k) plans.
The commentary, analysis and opinions expressed are those of Stadion’s investment Team. The commentary, analysis and opinions referenced are as of the date of publication and are subject to change without notice. This material is for informational purposes only and should not be considered investment advice. This is not a recommendation to buy or sell a particular security. The investment strategy or strategies discussed may not be suitable for all investors.
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