12/11/2022 0 Comments University tdf plan![]() When real estate was incorporated in two different target-date fund-like glide paths as a replacement for a portion of both equity and bond allocations, it tended to reduce volatility, but also ended up increasing retirement income for low-income earners while reducing the amount of retirement income generated by high earners.Īs they did with direct real estate, the researchers allocated to hedge funds from both the bond and equity portions of a target-date portfolio, creating two different glide paths with different levels of allocation. Plan sponsors and advisors may be ill-prepared to implement direct real estate placements, and target-date funds might not be able to access much of the private equity and hedge fund space, argues Jeff Schwartz, president of Markov Processes, a Summit, N.J.-based investment research firm.Īccording to the Georgetown paper, using alternatives in target-date funds can improve portfolio outcomes, assuming a target-date fund spends through 30 years of retirement. When the researchers replaced a portion of a target-date fund’s equity allocation with private equity, annual retirement income increased: If investors’ private equity allocations tapered from 20 percent at the beginning of their careers to 10 percent at retirement, and then to 0 percent 10 years after retirement, they could generate $11,000 in additional retirement income per year over a traditional target-date fund portfolio. ![]() On the other hand, adding certain asset classes to target-date funds could dramatically increase the fees paid by investors, who would also sacrifice some liquidity in order to access alternatives. ![]() As new research has found that an allocation to alternatives can benefit target-date products, a debate remains about whether these funds are worth the cost.Īllocations to private equity, private real estate and hedge funds can lead to better outcomes for target-date investors, including more retirement income and less volatility over time, according to “The Evolution of Target Date Funds: Using Alternatives to Improve Retirement Plan Outcomes,” a report from Georgetown University’s Center for Retirement Initiatives and Willis Towers Watson. ![]()
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