According to the announcement, Russell’s research found that typical participants can tolerate the risk of an all-equity portfolio in earlier years when they have many years of future savings available to offset investment losses. In result, Russell came up with a method for constructing the optimal “glide path” for a target date fund. The glide path is the evolution of the mix of equities and fixed income over the life of the fund, the announcement said.
The changes, effective October 2006, to the asset allocation between equity and fixed income for each target date fund resulted in the following:
- The 2010 fund has an asset allocation of 40% stock and 60% fixed income, a change from the 45%/55% strategy.
- The 2020 fund has an asset allocation of 64% stock and 36% fixed income, a change from 55%/45% strategy.
- The 2030 fund has an asset allocation of 95% sock and 5% fixed income, a change from 64%/36% strategy.
- The 2040 fund has an asset allocation of 100% stock and no fixed income allocation, a change from 72%/28% strategy.
At the target date the funds will keep an asset allocation mix of 32% stock and 68% fixed income funds, rather than continuing to become more conservative.
The LifePoints Funds, Target Date Series were launched in March 2005 and are available through selected independent financial intermediaries and on several defined contribution platforms.