Evaluating ‘To’ vs. ‘Through’ Glide Paths
The goal for account balances and participants’ distribution behavior at retirement can help plan sponsors determine which glide path is right.
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Target-date funds (TDFs) are the most widely used default investment alternative, and plan sponsors who use them need to understand their underlying glide paths. Knowing whether a TDF family is considered to have a “to” or “through” glide path is important in TDF selection and monitoring.
“To” glide paths are designed for an investor who expects to invest in the fund up until retirement, while a “through” glide path is for the investor who plans to withdraw funds gradually after retirement, says John Doyle, senior retirement strategist at Capital Group.
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Generally, 2020 target-date funds were conservative enough to cushion the market’s blow early in the year. Illustration by Glenn Harvey Text size
For anyone who had been contemplating retiring in 2020, the first quarter couldn’t have been easy. Stocks fell 34% in 23 days as the pandemic took hold and the economy quickly weakened. These stomach-churning moments are when investors make some of their worst mistakes the kinds of mistakes that automatic investment products, like target-date funds, try to circumvent. In 2020, they largely did.
As of Dec. 31, 2020, the average return of a vintage 2020 target-date fund was 10.8%, one percentage point lower than the 11.7% return for a balanced fund with a 50% to 70% equity allocation, according to data from Morningstar Direct. In the first quarter, 2020 target-date funds overall fell 10%, on average.