Exploring the pros and cons of target date funds

Authors

  • Ben Branch lsenberg School of Management, University of Massachusetts
  • Liping Qiu lsenberg School of Management, University of Massachusetts

DOI:

https://doi.org/10.61190/fsr.v20i2.4695

Keywords:

Mutual funds, Lifecycle funds, Target-date funds, Bootstrap, Asset allocation, Retirement

Abstract

Herein, we explore the potential performance of both fixed allocation and target date strategies using one, five, IO, 20, and 40 year bootstrapping windows. We find not only that the mean accumulations and annuity values rise with the stock allocation percentage but also that both the Sharpe and Treynor ratios are substantially higher for the high concentration stock portfolios. These results challenge the claims of target date funds. If the past performance of the asset classes is a useful guide, the probability that performance will be worse for a high fixed stock allocation is not only small but any underperformance is likely to be relatively modest.

Downloads

Published

2011-06-30

How to Cite

Branch, B., & Qiu, L. (2011). Exploring the pros and cons of target date funds. Financial Services Review, 20(2), 95–111. https://doi.org/10.61190/fsr.v20i2.4695

Issue

Vol. 20 No. 2 (2011): FSR Summer 2011

Section

New Original Submission

License

Copyright (c) 2011 Academy of Financial Services

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Author(s) retain copyright and grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows to share the work with an acknowledgment of the work's authorship and initial publication in this Journal.

This license allows the author to remix, tweak, and build upon the original work non-commercially. The new work(s) must be non-commercial and acknowledge the original work.