LifePath® keeps investors on track amid turbulence

Nov 10, 2020
  • BlackRock

LifePath target date funds are designed to help investors achieve their retirement goals, whether the next milestone is 30 years away or right around the corner. The COVID-19 pandemic caused major losses across all risk assets early in 2020. Although the market downturn affected LifePath funds, the funds performed as designed, and benefited from the subsequent rally.

Nick Nefouse, the co-head of LifePath, explains how LifePath funds performed during the pandemic-related downturn early in the year, how they have fared since, and what to expect going forward.

How did the funds perform?

The losses we saw in the first quarter aligned with our expectations. Our longer-dated funds have glidepaths that tilt heavily toward growth assets, and their returns fell as markets sold off. That’s not surprising: These funds are designed for younger investors with capacity to take on more risk tolerance and a target date that’s still decades away. LifePath’s shorter-dated funds held up better when the market declined. That’s also to be expected, because their balanced approach is designed to protect against downside volatility when retirement is imminent.

The funds benefited as equities and other growth assets rebounded powerfully in the second quarter and built on those gains during the third quarter. As equity markets gained, a high allocation to growth assets helped the longer-dated funds recover losses from earlier in the year. The rally in growth assets also boosted the shorter-dated funds, which had less ground to make up after experiencing smaller first-quarter losses.

What we’re watching

We’re tracking two important factors particularly closely. First, we’re looking at investors’ behavior during the first three quarters of the year, and the ways their actions (if any) affected their portfolios. It’s critical that we understand these dynamics, so we can help participants avoid the kinds of counterproductive behaviors we observed during both the financial crisis of 2008 and the fourth quarter of 2018.

Second, we’re examining the complex role of fixed income in light of the continuing low interest rate environment. In the near term, we believe high-quality government bonds will continue to help hedge portfolios when growth assets fall. And we’re looking to our experience in Europe and Japan, which have seen prolonged low-rate environments, to help guide our thinking about the future.

The LifePath glidepath is built on extensive research and implemented with a disciplined investment approach. We’ll continue to apply these qualities to help plan sponsors guide their participants successfully into retirement.

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