Dynamic lifecycle strategies for target date retirement funds

Basu, Anup K., Byrne, Alistair, & Drew, Michael E. (2011) Dynamic lifecycle strategies for target date retirement funds. The Journal of Portfolio Management, 37(2), pp. 83-96.

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Abstract

Target date retirement funds have gained favor with retirement plan investors in recent years. Typically, these funds initially have a high allocation to stocks but move towards less volatile assets, such as bonds and cash, as the target retirement date approaches. Empirical research has generally found that a switch to low-risk assets prior to retirement can reduce the risk of confronting the most extreme negative outcomes. This article questions the rationale for lifecycle switching based solely on age or target retirement date as is the prevalent practice among target date funds. The authors argue that a dynamic switching strategy, which takes into consideration achieved investment returns, will produce superior returns for most investors compared to conventional lifecycle switching. In this article, the authors put forward a dynamic lifecycle switching strategy that is conditional on the attainment of the plan member's wealth accumulation objective at every stage of switching.

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14 citations in Scopus
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6 citations in Web of Science®

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ID Code: 57575
Item Type: Journal Article
Refereed: Yes
Keywords: Target Date Fund, Retirement Invesment, Pension, Dynamic Asset Allocation, Target Return
ISSN: 0095-4918
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
Copyright Owner: Copyright 2011 Euromoney Institutional Investor PLC
Deposited On: 24 Feb 2013 23:04
Last Modified: 12 Apr 2013 15:27

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