Investors are typically overweight equities and gradually scale back their stock exposure as they hit their golden years. However, some argue that young investors should not be over-allocated toward stocks either.
In a recent research note, Rob Arnott, the chairman and CEO of Research Affiliates, believes that stock-heavy portfolios, such as target-date funds aimed at young investors, are a bad fit for 20-something workers since people could tap out their retirement savings if the economy moves into a recession, reports Karen Damato for the Wall Street Journal.
Target-date funds track a mix of stocks, bonds and other investments. The funds will typically overweight stocks for young investors and become more conservative, or overweight fixed-income assets, when they move toward retirement age.
For instance, the Deutsche X-trackers 2020 Target Date ETF (NYSEArca: TDH) has a 46.3% stock allocation and a 53.2% bond position, whereas the Deutsche X-trackers 2040 Target Date ETF (NYSEArca: TDV) includes 90.8% stocks and 8.8% bonds.
BlackRock’s iShares had a group of Target Date ETFs, but trading in the funds were halted prior to market open on October 15, 2014. [iShares Will Close 18 ETFs]
People typically overspend when they are young and aggressively save as they approach their peak earning years.