Morningstar Advisor - October/November 2013 - (Page 62)

Gray Matters Does Being Prudent Pay Off? By Janet Yang What constitutes appropriate risk-taking varies widely in the target-date universe. That could have a huge impact on retirement savings. A primary worry for many retirement savers is that their nest egg won’t last as long as they will. Target-date funds, which alter their asset allocation over decades to become less stock-heavy and more bondand cash-heavy, try to solve for this “longevity” risk, but many sport drastically different asset-allocation glide paths. How do investors know if their target-date fund has a reasonable approach? 62 Morningstar Advisor October/November 2013 Asset-allocation glide paths form the figurative backbone for target-date funds, and they map out a target-date series’ long-term changes in asset classes over time. Despite their key role in determining investment success, there are few ways to evaluate glide paths and compare one series’ asset-allocation plan with another’s. Exhibit 1 shows the industry average glide path, an average of the strategic equity allocations disclosed in funds’ prospectuses as of Dec. 31, 2012, as well as the industry maximum and minimum equity exposures for each year along the funds’ glide path. The data illustrate a wide range of target-date glide paths, demonstrating that target-date funds can be far from interchangeable with one another. For example, longer-dated 2055 funds, intended for younger investors with many years to go before retirement, have almost a 20-percentage-point difference between the most and least aggressive options.1

Table of Contents for the Digital Edition of Morningstar Advisor - October/November 2013

Morningstar Advisor - October/November 2013
Letter From the Editor
How to Make Social Media Work for You
Do Mutual Funds Still Have a Role?
More Personal Than Finance
How to Handle Your TIPS Positions
A Real Estate Veteran Starts From Scratch
Investments á la Carte
Investment Briefs
When to Say No
Take a Guarded Approach to Homebuilders
Fund Distribution Has Been Turned on Its Head. Now What?
Winning the Distribution Battle
Active ETFs Wait for Their Heyday
A Fund Firm Defies Indexing Trend
Piloting New Channels
A Good Fit
The Predictive Power of Fair Value Estimates
Does Being Prudent Pay Off?
Utilizing Utilities’ Total Return
Stuck in the Middle Is Not a Bad Place to Be
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
The Good Guys Win

Morningstar Advisor - October/November 2013