In a recent PlanSponsor article, Defined Contribution expert, Jake Tshudy poses the point that target date funds (TDFs) might be too equity heavy. Like many investors, TDFs are riding the bull market leading to investment strategies that we believe are overall too risky. In fact, the average TDF for the year 2020 still has 54% of its assets allocated to equities, according to the article. 

As a leader in the pension industry, we believe an actuarial valuation approach akin to a DB plan is the best strategy to determine if a TDF series has an appropriate level of risk based on the plan’s demographics. Aside from receiving an analysis , the asset allocations among our defined contribution clients include:

  • Investments other than stocks and bonds, so that TDFs are not riding the market cycle
  • High yield and emerging markets debts seeking to manage downside risk

And while on the surface our approach may seem less advantageous because there is a lower allocation to equities, this allocation is expected tends to create better returns during market downturns.

Read: Many TDFs Need to Be Adjusted for Risk 

Legal Note

Information provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company.

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