How to Evaluate Target-Date Funds: A Practical Guide

Abstract

The article describes and showcases a framework to analyze life-cycle, or target-date, investment strategies with intuitive, practical metrics. Anchored in the complex theory of life-cycle investing, we propose a comprehensive collection, or “dashboard,” of measures to capture various aspects of the problem: wealth-focused versions of return and risk concepts; the link between retirement contributions and portfolio returns; the strategy’s ability to support income in retirement; and behavior around retirement, a period when risk to invested wealth is greatest. These metrics are synthesized into one holistic view based on investor-specific preferences, highlighting the connection between investor characteristics and the life-cycle investment problem. TOPICS: Wealth management, long-term/retirement investing, pension funds