LifePath® funds aim to improve participants’ lifetime consumption by aligning fixed income allocations with lifecycle investing principles. This involves gradually shifting from growth-oriented assets (like equities) in early years to more conservative assets (like bonds) as participants approach retirement.
Traditionally, LifePath funds relied on the Bloomberg Aggregate Bond Index (“the Agg”) for fixed income exposure. BlackRock’s research suggests that breaking the Agg into its components—such as U.S. Treasuries, corporate bonds, and securitized assets—enables more precise asset allocation, balancing security and growth potential.
By fine-tuning fixed income allocations based on age and time horizon, while maintaining high-quality bond exposure, this evolved strategy can better align with lifecycle objectives. This approach is designed to help participants achieve the primary goal of higher lifetime consumption compared to a blunt allocation using the Agg.
An approach to fixed income in LifePath® target date funds that aims to improve participants’ lifetime consumption.
Fixed income assets often play a crucial role in participants’ long-term retirement strategy. They provide opportunities for growth and serve as important ballast to protect against risks such as market downturns and rising inflation.
However, solving for improved retirement outcomes also requires an evaluation of participant’s fixed income exposure through the lens of lifecycle investing. LifePath’s lifecycle model seeks to deliver consistent spending outcomes over a participant’s lifetime, an endeavor which relies on evolving but precise asset class exposures. The principal value of a strategy portfolio is not guaranteed at any time, including at and after the target date.
At BlackRock, we wanted to evaluate if a more finely tuned approach to LifePath’s fixed income allocations could help achieve the objective of greater lifetime consumption over a participants’ lifecycle. Our research findings indicate the answer is yes.
LifePath participants’ asset class exposures shift gradually over their lifecycle, moving from more aggressive and growth-oriented strategies during a participants’ younger years to more conservative ones as those participants approach and enter retirement. Younger participants typically have heavy exposure to growth-oriented assets such as equities, and relatively little exposure to more conservative assets such as bonds. Over time, those allocations shift, with fixed income taking on a more prominent role to protect older participants’ assets against market and economic risks.
The Bloomberg Aggregate Bond Index (“the Agg”) has long been the source of fixed income investments in the LifePath funds. The Agg has served participants well, delivering both growth opportunities and stability during uneven periods in the market.
Since the primary objective of the LifePath funds is higher lifetime consumption, we believed it was worth evaluating the potential benefits of adapting BlackRock’s fixed income approach in these funds.
By breaking the Agg into its component parts—including government bonds such as U.S. Treasuries, corporate bonds and securitized assets—we believe we can deliver a more precise asset allocation strategy to LifePath participants. This approach can emphasize the security provided by certain bonds such as Treasuries, as well as the unique growth characteristics of bonds such as corporate issues and securitized assets.
Our research suggests that this disaggregated fixed income approach can deliver to participants higher lifetime consumption than they might receive through allocation in a blunt fixed income instrument such as the Agg.
This evolution of fixed income allocations aims to maintain the same high-quality bond exposure found within the Agg, while improving the ability to fine-tune strategic allocations for participants based on their age and time horizons.
The glidepath and asset allocation decisions in LifePath are driven by our understanding of the evolving dynamics between human capital (an individual’s ability to earn income over their lifetime) and financial capital (an individual’s current financial wealth). Applying this framework to our fixed income exposure aligns our strategic fixed income allocations with the lifecycle objectives along the glidepath. With this research and evolution of our fixed income allocation, we believe we can more effectively help participants meet the LifePath funds’ primary objective of higher lifetime consumption.
Download the paper to see the full research.
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The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by BlackRock, Inc. and/or its subsidiaries (together, “BlackRock”) to be reliable. No representation is made that this information is accurate or complete. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.
This material does not constitute a recommendation by BlackRock, or an offer to sell, or a solicitation of any offer to buy or sell any securities, product or service. The information is not intended to provide investment advice. BlackRock does not guarantee the suitability or potential value of any particular investment.
LifePath strategies may be offered as mutual funds. You should consider the investment objectives, risks, charges and expenses of each fund carefully before investing. The prospectuses and, if available, the summary prospectuses contain this and other information about the funds, and are available, along with information on other BlackRock funds, by calling 800-882-0052 or from your financial professional. The prospectuses and, if available, the summary prospectuses should be read carefully before investing.
Investing involves risk, including possible loss of principal. Asset allocation models and diversification do not promise any level of performance or guarantee against loss of principal. Investment in the strategies is subject to the risks of the underlying funds.
LifePath target date strategies are invested mainly in U.S. and global stocks early on, shifting to more conservative investments, such as bonds, as investors get closer to retirement. The target date is the approximate date when investors plan to start withdrawing their money. The blend of investments in each portfolio are 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) over time as investors move closer to the target date. The principal value of a strategy portfolio is not guaranteed at any time, including at and after the target date.
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