ETF Trends
ETF Trends

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.

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