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Journal Title
Financial Services Review
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Publication Date
2008-06-01
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Publication Volume
17
Publication Issue
2
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Abstract
Target-date mutual funds are likely to increase in popularity because they are now one of the three approved default options for many retirement plans. In the retirement years, target-date funds become increasingly conservative with higher bond concentrations. Using a bootstrap simulation and rolling period analysis, three target-date fund classifications are shown to have higher probabilities of running out of money and lower balance remaining when compared to fixed allocation portfolios. A fixed 50/50 stock/bond portfolio unambiguously out-performs the target-date funds, regardless of methodology employed. In light of this evidence, these funds should revisit their asset allocation strategy.
Citation
Spitzer, J. J., & Singh, S. (2008). Shortfall risk of target-date funds during retirement. Financial Services Review , 17 (2), 143-153.