Research, analysis, and thoughts on retirement investments & the future of personalization
It’s the holiday season once again, and for the kid in us, it’s time to look forward to unwrapping presents. It’s not unusual to be surprised by what’s inside the box. Sometimes it’s for the best but, unfortunately, sometimes it’s for the worse.
Target Date Funds (TDFs) have a pre-determined glide path which drives its asset allocation. While it does not happen frequently per se, this pre-determined path can be changed by the TDF issuer at any time. These adjustments can be smaller more fringe changes or more wholesale methodology changes.
Target Date Funds' “yellow brick road” is their glide path. The glide path is, in essence, a pre-described mix of the TDFs asset allocation over time. Since the advent of TDFs, it has been universally accepted that the longer a participant's time horizon, the more risk they should accept via higher equity exposure.
The advent of the Target Date fund was back in early 1994 (as detailed in an earlier post). As TDFs grew in popularity and more plans/advisors/participants starting using them, a question arose as to how properly measure a TDF's performance.