With targeted Retirement or Lifecycle Funds, you pick when you expect to retire. These mutual funds will increase the percentage of bonds vs stocks as you approach retirement. The theory is that it'll increase returns and minimize risk.

All the big brokerages offers these. Fidelity has its Freedom Funds and Vanguard has its Target Retirement Funds.

But the article covers a recent study of real-world portfolio returns, and the study has found that there is no particular advantage in this approach.

The study supports keeping asset allocations fixed.

 

Submitted: Apr 26, 2008    Views: 231    Comments: 4    Likes: 2   


View Article: http://www.nytimes.com/2008/04/20/business/yourmoney/20stra.html?pa...


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Comments Received:

JRodgers

I agree with your suggestion that these are ridiculous and with the article. Investors, even those who aren't sophisticated, should be able to do simple risk allocation on all sorts of objective and subjective factors and not outsource this function.

Posted: Apr 27, 2008

Sam Cass
Sam_Cass

Interesting. The same thing is probably true for 529 plans. The management fees are usually high and based on this study it doesn't seem like the shifting portfolio allocation makes a difference.

Posted: Apr 27, 2008

JRodgers

Sam, shifting portfolio allocation based on age to retirement and other circumstances makes tremendous sense, but the idea that there is a set formula that works for everyone and applies objective factors is what doesn't make sense. These companies are focused only on the former, ignoring the later, and charging extraordinarily high management fees as you note.

Posted: Apr 29, 2008

Sam Cass
Sam_Cass

"Sam, shifting portfolio allocation based on age to retirement and other circumstances makes tremendous sense, but the idea that there is a set formula that works for everyone and applies objective factors is what doesn't make sense."

@ JRogers - Did you read the article? The research debunks that very statement. The research shows that keeping your money in equities maximizes your potential for return, even at an older age.

Posted: May 2, 2008



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