This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

J.P. Morgan Asset Management Finds Some Target Date Funds Overlook Critical Factors

Another key finding is that most participants withdraw their entire account balances shortly after they stop working. As of 2011, 83% of participants have withdrawn their entire account balance within just three years of retirement. This has significant implication for the "to" versus "through" glidepath debate in the target date fund industry, as it relates to contention over the appropriate level of equity risk at the point of retirement. These withdrawal figures suggest that maintaining outsized equity allocations in years leading up to retirement subjects participants to unnecessary and dangerous risks just as they are most prone to withdraw their assets.

"It's risky for target date funds to rely heavily on equities, but at the same time they can't curtail long-term return potential by being too conservative. We think the solution is to increase risk efficiency through broader asset class diversification, such as incorporating high yield, direct real estate, emerging market equity and debt and other asset classes to lower expected volatility without sacrificing return potential," said Daniel Oldroyd, Portfolio Manager of JPMorgan SmartRetirement target date strategies, J.P. Morgan Asset Management Global Multi-Asset Group. "A stronger risk-adjusted return profile can also help mitigate the long-term impact of these negative participant behaviors, such as loans and contribution shortfalls, that we see occurring increasingly among savers."

Comparing Target Date Fund Designs, Combating Suboptimal Behaviors

Having a well-designed target date fund offers the greatest chance of retirement security for the vast majority of participants. However, it's hard to compare target date funds on an "apples to apples" basis and short-term performance can be misleading when evaluating strategies. Plan sponsors have to look at long-term return potential, embedded volatility, asset allocation and how these nuances interplay with real-life participant behaviors. J.P. Morgan Asset Management's Target Date Compass tool objectively maps competing fund strategies across quadrants based on portfolio composition and risk levels to give sponsors and advisors a comparative view. Regardless of how they choose to assess fund choices, plan sponsors should carefully consider the type of strategy that will best meet their particular plan's needs and goals.

2 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG

Markets

DOW 18,000.80 -34.13 -0.19%
S&P 500 2,102.55 +2.15 0.10%
NASDAQ 5,020.7290 +26.1270 0.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs