Morningstar Advisor - Spring 2008 - 51

Glide Path of the Morningstar Target-Plus Moderate Index Series: The asset allocations of each target-date index are based on research from Ibbotson and Morningstar. Stocks Bonds TIPS Cash r Allocations grounded in rigorously devel- oped financial theory. r A family of indexes seamlessly engineered 100% 80 60 40 20 2055 2050 2045 2040 2035 2030 2025 2020 2015 2010 2005 2000 to solve for the financial capital portfolio. The total value of human capital fades over time, however, as wages are earned, saved, and spent. This fade creates a parallel need to adjust the asset allocations in the financial capital portfolio so the market portfolio can remain true to the characteristics of the modeled population. Given the differences in human capital and risk capacities, however, Ibbotson developed a family of asset allocations appropriate for three major investor risk profiles: aggressive, moderate, and conservative. Each financial capital allocation evolves over time along an optimal path that is appropriate for the human-capital attributes specific to that risk profile. The research group at Ibbotson has spent several years testing the applicability of market portfolio theory and efficient frontier mechanics to lifecycle asset allocations. (See Chen, Ibbotson, Milevsky, and Zhu, “Lifetime Financial Advice,” CFA Institute Research Foundation Monograph, 2007.) The Target-Plus Index Family but also years past their retirement date— target “plus,” if you will. (We also consulted with the largest target-date fund providers to learn what the experts on the frontlines are seeing today.) Advisors can use these indexes as benchmarks to evaluate whether their clients are on the lifetime glide path that gives them the best chance of meeting their retirement income needs. The Morningstar Target-Plus Index family consists of three groups of indexes—aggressive, moderate, and conservative—to match Ibbotson’s three risk categories. Within each risk category, we have a series of indexes ranging from 2055 target retirements to an income allocation, covering 1999 and earlier retirements, spaced in five-year increments. The 2010 and later series covers the preretirement accumulation needs of 18- to 63-year-olds. The 2005, 2000, and income index series covers the distinctly different asset allocation needs of investors who are in their retirement years. The index family will maintain a rolling set of 10 accumulation indexes and three retirementincome indexes in each risk preference category going forward. The Morningstar Target-Plus Indexes deliver the features advisors and investors need when it comes to investing for a lifetime: to provide style-pure exposure to respective 120 asset classes in a low-cost, investable, and daily priceable manner. r A set of asset classes that deliver optimal efficient frontier exposures to not just global equities but also global fixed-income and inflation-fighting assets. r An adequate number of subclass allocations that deliver true tactical allocation options where appropriate. r A partner with decades of experience researching asset-allocation theory, capital markets assumptions, and optimal investment strategy execution. Conclusion There are a growing number of benchmarks an investor or advisor can use to evaluate a target-date fund. By pairing Ibbotson’s allocation methodology with Morningstar’s style-pure index building blocks, the Morningstar Target-Plus Index family creates an ideal benchmark for an investor’s lifetime asset-allocation needs. Quantitative measurement alone, however, is not enough. We recommend that targetdate fund investors and advisors understand other key attributes about a fund, such as the rationale behind the asset allocations, the strategy in place to fight inflation, what the fund plans to do with an investor’s assets during the postretirement phase, and how the fund stacks up in terms of expenses. A holistic approach to target-fund due diligence combined with regular financial planning sessions at major checkpoints in an investor’s life will be key factors in successfully implementing a retirement income strategy driven by target-date funds. K Rod Bare is Morningstar’s director of asset allocation strategies. We’ve combined the principles of Ibbotson’s methodology with Morningstar’s family of investable index building blocks to create a family of asset-allocation indexes that serve investors not only up until their retirement date, MorningstarAdvisor.com 51
http://MorningstarAdvisor.com

Morningstar Advisor - Spring 2008

Table of Contents for the Digital Edition of Morningstar Advisor - Spring 2008

Morningstar Advisor - Spring 2008
Contents
Letter from the Editor
Inbox
Do You Use Annuities with Living Benefit Guarantees?
Managers Who Actively Enrich Shareholders
Staying Out of the Silos
Investment Briefs
Let’s Not All Become Fundamental Indexers Just Yet
Volatility Potential
Adding the Income Dimension
Do’s and Don’ts of RMDs
An Attractive Yield is Only Skin Deep
Mutual Funds Get in the Game
Beyond Target Date
The Last Holdout
A Bird of a Different Feather
First-Class Thinker
Sleep Like a Baby
Is Health Care Immune to a Recession?
Anatomy of a Mutual Fund Disaster
Embrace Your Inner Contrarian
Risks Worth Taking
Mutual Fund Analyst Picks
Undervalued Stocks
Most Popular Variable Annuities
New at Morningstar and on MorningstarAdvisor.com
Back to the Garden
Morningstar Advisor - Spring 2008 - Intro
Morningstar Advisor - Spring 2008 - Morningstar Advisor - Spring 2008
Morningstar Advisor - Spring 2008 - Cover2
Morningstar Advisor - Spring 2008 - 1
Morningstar Advisor - Spring 2008 - 2
Morningstar Advisor - Spring 2008 - Contents
Morningstar Advisor - Spring 2008 - 4
Morningstar Advisor - Spring 2008 - 5
Morningstar Advisor - Spring 2008 - 6
Morningstar Advisor - Spring 2008 - Letter from the Editor
Morningstar Advisor - Spring 2008 - 8
Morningstar Advisor - Spring 2008 - Inbox
Morningstar Advisor - Spring 2008 - Do You Use Annuities with Living Benefit Guarantees?
Morningstar Advisor - Spring 2008 - 11
Morningstar Advisor - Spring 2008 - Managers Who Actively Enrich Shareholders
Morningstar Advisor - Spring 2008 - 13
Morningstar Advisor - Spring 2008 - 14
Morningstar Advisor - Spring 2008 - Staying Out of the Silos
Morningstar Advisor - Spring 2008 - 16
Morningstar Advisor - Spring 2008 - 17
Morningstar Advisor - Spring 2008 - Investment Briefs
Morningstar Advisor - Spring 2008 - 19
Morningstar Advisor - Spring 2008 - 20
Morningstar Advisor - Spring 2008 - 21
Morningstar Advisor - Spring 2008 - Let’s Not All Become Fundamental Indexers Just Yet
Morningstar Advisor - Spring 2008 - 23
Morningstar Advisor - Spring 2008 - 24
Morningstar Advisor - Spring 2008 - 25
Morningstar Advisor - Spring 2008 - Volatility Potential
Morningstar Advisor - Spring 2008 - 27
Morningstar Advisor - Spring 2008 - 28
Morningstar Advisor - Spring 2008 - 29
Morningstar Advisor - Spring 2008 - 30
Morningstar Advisor - Spring 2008 - 31
Morningstar Advisor - Spring 2008 - Adding the Income Dimension
Morningstar Advisor - Spring 2008 - 33
Morningstar Advisor - Spring 2008 - 34
Morningstar Advisor - Spring 2008 - 35
Morningstar Advisor - Spring 2008 - Do’s and Don’ts of RMDs
Morningstar Advisor - Spring 2008 - 37
Morningstar Advisor - Spring 2008 - 38
Morningstar Advisor - Spring 2008 - 39
Morningstar Advisor - Spring 2008 - An Attractive Yield is Only Skin Deep
Morningstar Advisor - Spring 2008 - 41
Morningstar Advisor - Spring 2008 - Mutual Funds Get in the Game
Morningstar Advisor - Spring 2008 - 43
Morningstar Advisor - Spring 2008 - 44
Morningstar Advisor - Spring 2008 - 45
Morningstar Advisor - Spring 2008 - 46
Morningstar Advisor - Spring 2008 - Beyond Target Date
Morningstar Advisor - Spring 2008 - 48
Morningstar Advisor - Spring 2008 - 49
Morningstar Advisor - Spring 2008 - 50
Morningstar Advisor - Spring 2008 - 51
Morningstar Advisor - Spring 2008 - 52
Morningstar Advisor - Spring 2008 - The Last Holdout
Morningstar Advisor - Spring 2008 - 54
Morningstar Advisor - Spring 2008 - 55
Morningstar Advisor - Spring 2008 - 56
Morningstar Advisor - Spring 2008 - 57
Morningstar Advisor - Spring 2008 - 58
Morningstar Advisor - Spring 2008 - 59
Morningstar Advisor - Spring 2008 - A Bird of a Different Feather
Morningstar Advisor - Spring 2008 - 61
Morningstar Advisor - Spring 2008 - 62
Morningstar Advisor - Spring 2008 - 63
Morningstar Advisor - Spring 2008 - First-Class Thinker
Morningstar Advisor - Spring 2008 - 65
Morningstar Advisor - Spring 2008 - 66
Morningstar Advisor - Spring 2008 - 67
Morningstar Advisor - Spring 2008 - Sleep Like a Baby
Morningstar Advisor - Spring 2008 - 69
Morningstar Advisor - Spring 2008 - 70
Morningstar Advisor - Spring 2008 - 71
Morningstar Advisor - Spring 2008 - 72
Morningstar Advisor - Spring 2008 - 73
Morningstar Advisor - Spring 2008 - Is Health Care Immune to a Recession?
Morningstar Advisor - Spring 2008 - 75
Morningstar Advisor - Spring 2008 - Anatomy of a Mutual Fund Disaster
Morningstar Advisor - Spring 2008 - 77
Morningstar Advisor - Spring 2008 - Embrace Your Inner Contrarian
Morningstar Advisor - Spring 2008 - 79
Morningstar Advisor - Spring 2008 - Risks Worth Taking
Morningstar Advisor - Spring 2008 - 81
Morningstar Advisor - Spring 2008 - 82
Morningstar Advisor - Spring 2008 - Mutual Fund Analyst Picks
Morningstar Advisor - Spring 2008 - 84
Morningstar Advisor - Spring 2008 - 85
Morningstar Advisor - Spring 2008 - 86
Morningstar Advisor - Spring 2008 - 87
Morningstar Advisor - Spring 2008 - 88
Morningstar Advisor - Spring 2008 - Undervalued Stocks
Morningstar Advisor - Spring 2008 - 90
Morningstar Advisor - Spring 2008 - 91
Morningstar Advisor - Spring 2008 - Most Popular Variable Annuities
Morningstar Advisor - Spring 2008 - 93
Morningstar Advisor - Spring 2008 - 94
Morningstar Advisor - Spring 2008 - New at Morningstar and on MorningstarAdvisor.com
Morningstar Advisor - Spring 2008 - Back to the Garden
Morningstar Advisor - Spring 2008 - Cover3
Morningstar Advisor - Spring 2008 - Cover4
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