BlackRock has recently published new research exploring the economics supporting a “to” approach to target date funds rather than a “through” approach, or reaching the final equity allocation at the target date instead of continuing to reduce risk past the target date. BlackRock contends that “to” funds are also preferable from a common sense perspective.
First, they argue, your potential income feeds your fund, but once that potential income is gone and you’ve retired, there is no longer a reason to reduce risk. Second, reduction of equities after retirement can undermine the potential of diversification. Finally, they say, the target date should be driven by the year retirement is set to start and not an arbitrary birth date.
John Adams is a writer for NAPA Net.
