Target Date Funds: The Essential Guide
Because not all target date funds are created equal...
If there is one thing that's clear from recent history, it's that not all target date funds are created equal. But that's good. It means you have choices - provided you understand the differences so that you can choose the target date fund that is aligned with your goals.
But how do you start? We believe there are four core components of a target date fund that you need to understand before you make your selection. After all, the fund you choose can make a big difference to your participants.
To build an effective asset allocation, you need a robust process that identifies the right building blocks among global equities, fixed income securities and real assets to drive performance over a long time horizon and produce consistent results. You also need to understand how all the parts of the asset allocation engine work together.
Asset allocation drives your target date fund
Once upon a time, the opportunity set of asset classes available to investors was relatively small. Over the last decade however, asset classes once only available to sophisticated institutional investors have become available and investable to individual investors. But does adding additional asset classes always improve diversification?
Not necessarily. A carefully constructed asset allocation takes into account the complexity, expense and impact on performance each new asset class brings. It requires expertise and perspective to determine which asset classes are investable, additive, and can ultimately improve outcomes.