Are target date funds the easy bake option?

Basu, Anup K., Doran, Brett M., & Drew, Michael E. (2013) Are target date funds the easy bake option? Journal of Financial Services Marketing, 18, pp. 199-206.

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Target date funds provide a simple, automated approach to retirement savings in defined contribution plans. The passing of the Pension Protection Act of 2006 has seen an increase in the popularity of these funds in the United States, becoming the default option for many plans. However, recent research findings have challenged the easy bake or ‘set-and-forget’ nature of target date funds. This study explores some of the critical design features of target date funds (which shifts an individual’s asset allocation from growth to defensive assets following a pre-set glidepath) against a simple balanced (or target risk) fund design. Using both time-weighted and dollar-weighted returns, our results suggest that there is more to achieving successful retirement outcomes than the investor simply selecting a proposed year of retirement. Our findings can perhaps be summarized by Einstein’s famous epithet, that in the murky world of retirement product design, everything should be made as simple as possible, but not simpler.

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ID Code: 63971
Item Type: Journal Article
Refereed: Yes
Keywords: target date funds, financial literacy, retirement outcomes
DOI: 10.1057/fsm.2013.13
ISSN: 1363-0539
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200) > Financial Economics (140207)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
Copyright Owner: Copyright 2013 Palgrave Macmillan Ltd.
Copyright Statement: This is a post-peer-review, pre-copyedit version of an article published in Journal of Financial Services Marketing. The definitive publisher-authenticated version [Journal of Financial Services Marketing 18, 199-206 (September 2013)] is available online at:
Deposited On: 04 Nov 2013 23:08
Last Modified: 04 Oct 2014 20:08

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