Asset Allocation for Retirement: Simple Heuristics and Target Date Funds
Journal of Financial Planning, March 2010
Posted: 20 May 2010
Date Written: March 2010
Abstract
We examine common asset allocation strategies for retirement investing, considering both static and dynamic approaches, as well as those allocation policies used by leading target date fund providers. We find that, over time, certain static approaches are essentially equivalent to dynamic strategies that reduce equity exposure through time. Further, we find that most target date fund providers appear to target a dynamic 120-age equity allocation. We suggest that financial planners consider a 100 percent equity allocation for their clients until approximately ten years prior to a client’s retirement, at which point a more conservative allocation should be employed.
Keywords: asset allocation, retirement investing, heuristics
JEL Classification: G11
Suggested Citation: Suggested Citation