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Order Reprints Print Article 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. ....
1 Introduction The creation of the target date fund (TDF) sought to make available a professionally managed solution for individuals saving for retirement through their employer’s defined contribution (DC)/ 401(k) plan. In the U.S., DC assets represent 61% of total retirement assets 1 and that percentage is expected to continue to rise. However, despite improvements to investment options and participant behavior, on average, DC plans continue to see returns that lag defined benefit (DB) plans. Looking across two recent studies, this deficit is clear: Corporate DB plans outperformed DC plans by an average of 70 bps, net of fees, per year between 1990 and 2012. ....