This trend could be raising risks in some target date funds, especially for older investors.
Millions of investors rely on their target date funds to not only help grow wealth, but preserve that wealth during bouts of market volatility. Traditionally, target date providers have relied on high-quality bonds to help provide this balance.
But credit quality can vary significantly within these funds’ bond exposure, even within investment-grade credit (rated BBB/Baa and above). Investment-grade bonds of lower credit quality have tended to fare worse in equity-market downturns. And the risk could be rising in today’s uncertain economic environment, given increased corporate leverage and a rise in lower quality bond issuance.