Asset allocation drives your target date fund

Once upon a time, the opportunity set of asset classes available to investors was relatively small. Over the last decade however, asset classes once only available to sophisticated institutional investors have become available and investable to individual investors. But does adding additional asset classes always improve diversification?

Not necessarily. A carefully constructed asset allocation takes into account the complexity, expense and impact on performance each new asset class brings. It requires expertise and perspective to determine which asset classes are investable, additive, and can ultimately improve outcomes.

Limits of Diversification

Bottom Line:

To build an effective asset allocation, you need a robust process that identifies the right building blocks among global equities, fixed income securities and real assets to drive performance over a long time horizon and produce consistent results. You also need to understand how all the parts of the asset allocation engine work together.

Action Step:

Take a deep look inside the funds underlying building blocks to determine the depth of diversification and how the pieces including equities, fixed income and real assets combine to align with the objective.

Print & Go Resource

Thumbnail: Target Date Funds: The Essential Guide

Target Date Funds:
The Essential Guide

Investing involves risk, including possible loss of principal.

The target date at the end of the name designates an approximate year in which an investor plans to start withdrawing money. The blend of investments in each portfolio is usually determined by an asset allocation process that seeks to maximize assets based on an investor's investment time horizon and tolerance for risk. Typically, the strategic asset mix in each portfolio systematically rebalances at varying intervals and becomes more conservative (less equity exposure) overtime as investors move closer to the target date. The principal value of the funds is not guaranteed at any time including the target date.