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Are target date funds dinosaurs? Failure to adapt can lead to extinction

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  • Peter A. Forsyth
  • Yuying Li
  • Kenneth R. Vetzal

Abstract

Investors in Target Date Funds are automatically switched from high risk to low risk assets as their retirements approach. Such funds have become very popular, but our analysis brings into question the rationale for them. Based on both a model with parameters fitted to historical returns and on bootstrap resampling, we find that adaptive investment strategies significantly outperform typical Target Date Fund strategies. This suggests that the vast majority of Target Date Funds are serving investors poorly.

Suggested Citation

  • Peter A. Forsyth & Yuying Li & Kenneth R. Vetzal, 2017. "Are target date funds dinosaurs? Failure to adapt can lead to extinction," Papers 1705.00543, arXiv.org.
    • Handle: RePEc:arx:papers:1705.00543
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    File URL: http://arxiv.org/pdf/1705.00543
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    References listed on IDEAS

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    5. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2013. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, volume 2, number 2-b.
    6. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2013. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, volume 2, number 2-a.
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    Cited by:

    1. Tessa Bauman & Bruno Gav{s}perov & Stjepan Beguv{s}i'c & Zvonko Kostanjv{c}ar, 2023. "Deep Reinforcement Learning for Robust Goal-Based Wealth Management," Papers 2307.13501, arXiv.org.

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