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Differing TDF Asset Allocations Yield Similar Outcomes

June 27, 2013 (PLANSPONSOR.com) – A new survey found that target-date funds (TDFs) with different asset allocations deliver similar retirement savings outcomes.

By Kevin McGuinness editors@plansponsor.com | June 27, 2013
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"We found that target-date funds with significantly different asset allocations deliver similar retirement savings outcomes up to age 85. And as the target-date industry matures, we see an increase in diversification of the underlying investments in terms of both fund strategy and geographical location. Though the asset allocation or fund selection among target-date investments varies, target-date funds are relatively suitable investments for retirement savings. Investors realize that, too, and continue to put their money in these funds," according to Josh Charlson, fund-of-funds strategist for Morningstar, Inc., and lead author of "Target-Date Series Research Paper: 2013 Industry Survey."

Using the Monte Carlo analysis methods, simulating possible allocations a glide path could take, Morningstar tested the likelihood of investors being able to successfully retire. The test used common assumptions of salary, savings rate and expected retirement age. Morningstar compared glide paths that shifted their asset allocation "to retirement"--when a target-date fund discontinues asset allocation adjustments once the retirement date is reached--and those that continue to shift "through retirement"--when a target-date fund continues to shift its allocation more conservatively after the retirement date is reached. The research found target-date investors in different series have similar probabilities of accumulating sufficient savings, at least through age 85.

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