Abandon Hope In Retirement Objectives Of Target Date Funds
One-size-fits-all-set-it-and-forget-it is not a plan that bears any relationship to these objectives. Saving enough is the right plan of action for these objectives.
All TDF products, from high risk to low risk, boast simulations that justify their path to the “hope.” That’s why there is such a wide dispersion of equity allocations at the target date – everyone is selling product.
Some TDFs are selling stocks and some are selling bonds, but all are using hope and cooked-up simulations to make their pitch. It’s no surprise that Bernstein has the highest equity allocation at target date while PIMCO has the lowest. And of course each has persuasive simulations to make their very different cases.
Fund companies appear to know the distinction between hope and objective. The evidence rests in the objectives that are written into legal documents. Replacing pay and managing longevity risk are never committed to writing.
Here are some examples taken from factsheets on the Internet:
Fidelity: “seeks investment returns associated with meeting retirement income goals.” (This one comes close, but what retirement income goals? Yachts and mansions work for me.)
Vanguard: “seeks to provide capital appreciation and current income consistent with its current asset allocation.”
T. Rowe: “seeks the highest total return over time consistent with an emphasis on both capital growth and income.”
So what should TDFs promise? Legitimate objectives are actually quite simple and obvious:
- Don’t lose participant savings.
- Make as much as you can but don’t lose participant savings.
The course of action for achieving these objectives is the patent-pending Safe Landing Glide Path® that integrates the tenets of modern portfolio theory with the disciplines of liability driven investing. Yes, a one-size-fits-all-set-it-and-forget-it glide path can be a plan for achieving these straightforward objectives. Solution triumphs over product.
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