Target-Date Funds - Sample 2019
Generating Long-Term Destitution for Increasing Millions of Americans While Making Compliance Departments Feel Good
From the September 2018 issue
“Paladin Research projects that the $2.5 trillion currently in target-date funds in the U.S. will grow by 2020 to $4 trillion and will comprise nearly 50% of all 401(k) assets (emphasis added)…
“Even setting aside for a moment the issue of [their relatively high] fees, the rise of target-date funds raises the question of what is really the best balance of investments between equities and bonds, and how the mix should change over an individual's career or lifetime…
“Given these [rising] life expectancy projections, we need to ask whether most target-date strategies, typically an equity/bond mix varying from 80/20 at the start to 40/60, 30/70 and even 20/80 at the target retirement date, really make sense in today's world. Aren't these figures, which are so commonly used in the investment world, a bit out of date?
“Thus perhaps investors should be advised to remain in a mostly-equity portfolio longer into their careers and, depending on circumstances, perhaps even after retirement. One can never guarantee that current equity returns will continue indefinitely in the future, but given over a century of experience in modern western financial markets, the compounded return of equities with reinvested dividends very likely will exceed that of a bond-dominated portfolio over any reasonable long-term horizon (emphasis added)...
“So maybe it is time to ask the hard questions before the current stampede to target-date funds becomes irreversible. It may be your ox that gets gored.”
—Mathematical Investor, “Are target-date funds the answer?” July 21