Ibbotson, a registered investment adviser (RIA) and wholly owned subsidiary of Morningstar, Inc., will create model portfolios spanning both the accumulation and retirement income phases of investing, according to a news release. Based on its patented methodology, Ibbotson will create asset allocations for investors who are saving for retirement and then combine traditional equity and fixed income investments with the SecurePath Advisory Account to create an income stream for retirees.
Ibbotson says it will also develop a select list of funds that SecurePath by Transamerica financial advisers, registered representatives, and investment adviser representatives with InterSecurities, Inc., can use when working with clients to implement the portfolios.
Ibbotson’s strategy utilizes both objective and subjective factors. Objective factors, including age, current wealth, savings rate, and salary, are used to quantify investors’ human capital (the amount of wealth they will save over their lives) and their financial capital (investors’ current retirement savings)—which determines the equity-fixed income mix. Subjective factors, such as investors’ desire to leave money to heirs, retirement income needs, and estimates of their own mortality, determine the investment product-insurance product mix. And finally, investors’ risk tolerance impacts both the asset allocation and product allocation decisions, the release says.
“Selecting between funds and annuities is not an either-or decision because investors need both continued wealth accumulation to fund a long retirement and income protection if they live longer than expected or the market takes a downturn,’ said Peng Chen, president of Ibbotson Associates. “Portfolios that optimally combine mutual funds with annuities can mitigate market risk and longevity risk while balancing personal preferences about bequeathing money to heirs and tolerance for risk.’