Entering text into the input field will update the search result below

Pandemic Heightens Concerns About Target Date Fund Risk: Most Are More Than 85% In Risky Assets At Their Target Date

Jun. 08, 2020 12:17 PM ET5 Comments
Ronald Surz profile picture
Ronald Surz


  • Target date funds (TDFs) have grown tenfold since 2008, when they lost 30%, from $200 billion to $2.5 trillion.
  • Recent COVID-19-induced losses have alerted investors to the risk in TDFs. Baby boomers cannot afford this risk.
  • An accurate appraisal of TDF risk includes all risky assets – equities, long-term bonds, etc. Most TDFs are more than 85% in risky assets at their target dates.

Just because nobody complains doesn't mean all parachutes are perfect. Benny Hill

Baby boomers on financial brink

Until now, it seemed that stock and bond markets would always go up in value so any target date fund (TDF) would do. In practice, the Big 3 - Vanguard, Fidelity, and T. Rowe Price - have garnered 70% of the $2.5 trillion invested in TDFs creating an oligopoly. Procedural prudence pretty much dictates that you have to hire who everyone else is hiring, but substantive prudence became an issue when these megafunds set off alarms by losing 20% in just 30 days due to the COVID-19 pandemic. Investment consultant surveys report that losing more than 10% for those near retirement is unacceptably excessive. The following graph shows the losses sustained in 2020 funds intended for people retiring this year who cannot afford losses at this critical time in their lives.

As shown in the graph, the SMART Target Date Fund Index defended in this meltdown, as it did in 2008, 2011, and 2018. In the following, we use the SMART Fund as the "Safe" TDF and the Big 3 as the "Industry" TDF.

Big concerns

Several recent articles have urged fiduciaries to reassess their TDF risk exposure. See these warnings for example:

There is a fairly good chance that the days of lucrative investment returns are over even though the Fed is doing all it can to keep the party alive. For now, the stock market is recovering because investors are overdosing on Hopium, believing the markets will soon return to where they were in 2019.

Hopium market high

Now is a good time to reassess your TDF's risk, before the

This article was written by

Ronald Surz profile picture
I'm president of  Target Date Solutions, developer of the patented Safe Landing Glide Path , Soteria personalized target date accounts, and Age Sage do-it-yourself investing. I;m also co-host of the Baby Boomer Investing Show.   My passion is helping his fellow baby boomers at this critical time in their lives when they are relying on their lifetime savings to support a retirement with dignity, so he wrote a book Baby Boomer Investing in the Perilous 2020s and he provides a financial educational curriculum I'm author of 3 books: Baby Boomer investing in the Perilous Decade of the 2020s, & 2 books on target date funds I’m smart with 2 Masters degrees and 55 years in financial consulting. I’m semi-retired, and prefer helping my fellow baby boomers rather than playing golf. I’m worried that our country, & most others, is playing with fire in its money printing. I’m here to help – that’s my legacy space.I help investors deal with life’s investment challenges, with the objective of enjoying a comfortable long retirement. I’m passionate about questioning and improving upon entrenched stale practices like jamming everyone into cookie cutter model portfolios. That's why I produce the Baby Boomer Investing Show live on Youtube and Facebook every other Tuesday at 10:00 PST. Watch live or replay by searching for "Age Sage Robo" on Facebook or Youtube. Please watch and support our Boomer Investing Show on Patreon ( https://www.patreon.com/user?u=35204315&fan_landing=true ) and visit our SA Blog at https://seekingalpha.com/account/authorboard/instablog . As president of Age Sage Robo (please Google), and CEO of GlidePath Wealth Management, I’m responsible for model development using my patented process . I have more than 50 years of financial service experience and hold a U.S. Patent for a time-tested glide path investment process that helps investors navigate the complicated financial decisions they face as they accumulate and preserve assets for their retirement years. Age Sage & GlidePath use this process to build Target Date, Special Purpose, and Life Span Portfolios that are tailored to the specific requirements of clients. My extensive financial career began at A.G. Becker Pension Consultants where I advised on the investment policies of several trillion dollars of retirement plan assets. After Becker I started my own consulting firms that developed innovative services for investors and the financial advisors who serve them. I’ve earned a BS and MS in Applied Mathematics from the University of Illinois and an MBA in Finance from the University of Chicago. I am author of the book "The Remarkable Metamorphosis of Target Date Funds" and co-author of "The Fiduciary Handbook for Understanding and Selecting Target Date Funds"Please visit https://babyboomerinvesting.show

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

I am sub-advisor of the SMART Target Date Fund Index

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.