The SSgA Target Retirement fund family is designed for those participants who wish to base their asset allocation decision on a specific target date, typically aligning the account with the fund that most closely matches their projected retirement date.
Eleven of these funds are included in the plan, with 5-year incremental targets from 2010 to 2055, along with a fund targeted as an Income Fund. The further away the target date, the more aggressive the asset allocation. Conversely, the closer the date, the greater the emphasis on preservation of capital in the asset allocation.
Target retirement funds hold some appeal in that they are simple to explain and administer. While this approach is unique, we believe the asset allocation decisions provided by these funds are crude at best. These funds attempt to make decisions about asset allocation based solely on a target date. An investor’s tolerance for risk and financial goals are other key factors that should largely play a role in determining investment strategy and asset allocation. Additionally, they leave no room for the fund manager to tactically adjust the strategy based on specific opportunities within the financial markets or in response to prevailing market conditions.
The returns realized in these commingled vehicles are diluted by a rigid adherence to mechanical allocation parameters. These parameters may prove to be shortsighted and inappropriate for everyone participating in the pool. The real world changes every day, yet proponents of lifecycle funds expect someone to stick to a single game plan for as much as 40 years, whether interest rates are rising or falling, or whether the economy is in expansion or recession. While target retirement funds offer a simple one-stop-solution, we continue to advise participants to avoid these funds and retain the flexibility to proactively adjust their portfolios as needed.