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Lipper Awards: The Moving Target Of Target-Date Funds
Back in the day, I used to plan my reallocations and new fund purchases around the publishing of the Lipper Awards list. Now, I look for curiosity purposes only. Thanks as always, Ted, for providing the links.
I've often thought there are really two target dates, one targeting retirement from "work" and one targeting retirement from "earth".
Fully funding a retirement date fund makes perfect sense. As it glides towards your retirement date it provides a smooth landing at retirement. Effectively, at that retirement date, an investor would effectively have 100% of their assets in a very low risk retirement fund. This is helpful if markets happen to severely correct in those early retirement years, but this portfolio will have longevity risk (may not survive as long as you do). So my thought is to reallocate a portion of this portfolio into more aggressive retirement fund(s) which attempt to achieve portfolio longevity.
If I was 30 years old today I would be fully fund a 2050 fund. At retirement, a percentage of this low risk retirement fund would be reallocated into a more aggressive retirement fund(s) targeting "earthly retirement". One approach would be to hold one additional fund targeting an earthly retirement date (2085 fund) or it could ladder into a number of retirement funds much like cds or bonds using a 5 year increment (by rolling equal portions of 2050, 2055, 2060, 2065, etc.).
Comments
Fully funding a retirement date fund makes perfect sense. As it glides towards your retirement date it provides a smooth landing at retirement. Effectively, at that retirement date, an investor would effectively have 100% of their assets in a very low risk retirement fund. This is helpful if markets happen to severely correct in those early retirement years, but this portfolio will have longevity risk (may not survive as long as you do). So my thought is to reallocate a portion of this portfolio into more aggressive retirement fund(s) which attempt to achieve portfolio longevity.
If I was 30 years old today I would be fully fund a 2050 fund. At retirement, a percentage of this low risk retirement fund would be reallocated into a more aggressive retirement fund(s) targeting "earthly retirement". One approach would be to hold one additional fund targeting an earthly retirement date (2085 fund) or it could ladder into a number of retirement funds much like cds or bonds using a 5 year increment (by rolling equal portions of 2050, 2055, 2060, 2065, etc.).
Your thoughts?