Target Date Strategies Weather the Storm

Institutional Investor just published an article titled “Where Does The Market Chaos Leave Target Date Funds?”

I don’t need to tell you what you already know—that recent weeks, months and even the past few days have been highly volatile. The article, which came out on August 10th, raises an interesting point:  The main motivation for Target Date strategies is a long-term “buy and hold” approach that investors expect to be sufficiently diversified to weather any sharp declines in any particular asset class—just like we all saw just this week.

This is, in fact, the very definition of diversification.

If part of the motivation for Target Date strategies is to provide long-term ‘buy and hold’ portfolios for investors, we would expect these strategies to be sufficiently well diversified to mitigate big declines in any individual asset class.

Investors in the Broad Market Seeing Red

Using market data (through August 9th) we see that the S&P 500 Index has returned -6.7% for Year-To-Date (including dividends) and has a three-year annualized return of -1.11% (including dividends).

However, we need to remind ourselves that the S&P 500 Index represents basically one major asset class which is large cap domestic equities.

Target Date Strategies: Providing a Safe Haven in the Storm

From my perspective, the Target Date Fund strategies—and specifically, the line-up of Target Date Folios I helped to design more than 3.5 years ago—are doing exactly what they are designed to do: Take advantage of market run-ups when times are good and provide the proverbial “shelter from the storm” when times are bad.

In the face of a massive run-up in volatility and decline in both domestic and international equity markets, the Target Date Folios are maintaining positive 3-year returns:

Target Date Folio Performance (through 08/09/11):

  •  Every Target Date Folio—from the most conservative 2010 Folio to the most aggressive 2045 Folio—has positive 3-year returns.

In answer to the question posed in the title of the article from Institutional Investor, I would say that the “market chaos” very clearly demonstrates the value proposition of well-designed Target Date strategies, specifically Target Date Folios.

Related Links:


The views expressed in this article are solely the views of the author and FOLIOfn Investments, Inc. neither approves of nor endorses those views. FOLIOfn Investments, Inc. does not provide investment advice or investment recommendations. It is the responsibility of the investor to determine whether investing in Target Date Folios or any other security is suitable and appropriate for them.

SPONSORED BY Folio Investing The brokerage with a better way.
Securities products and services offered through FOLIOfn Investments, Inc. Member FINRA/SIPC.

2 thoughts on “Target Date Strategies Weather the Storm

  1. Pingback: Surviving the September Swoon « Portfolio Investing Blog: Portfolioist

  2. Pingback: Q3 2011: Another Test for 2010 Target Date Funds « Portfolio Investing Blog: Portfolioist

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s