The Portfolio Size Effect and Lifecycle Asset Allocation Funds:A Different Perspective

摘要

Lifecycle or target-date funds (TDFs) have been promoted as a simple solution for retirement savers to invest their savings with a hands-off approach. This investment strategy involves allocating a high proportion of assets to equities during the early period far away from the target date, and gradually shifting to more conservative assets, such as bonds and bills, as the target date draws nearer. Confidence in this approach led the U.S. Department of Labor to adopt it in 2007 as one of the provisions in the Pension Protection Act of 2006 to be a qualified default investment alternative for corporate defined-contribution pension plans. But as a result of the financial crisis, the investment strategy has received criticism for not being conservative enough. TDFs may confuse investors because there are no clear guidelines about appropriate asset allocations over time, and equity allocations for some TDFs were perceived as being too high for soon-to-be retirees. In 2008, Morningstar reported equity allocations for 2010 TDFs ranging from 29% to 65%. Noting a 2010 retirement TDF that lost more than 40% of its value in 2008, Senator Herb Kohl has begun to push for greater regulation of TDFs to provide more disclosure to investors and to possibly place quantitative restrictions on their equity holdings as the target date approaches (Halonen [2009]).