Workers investing their hard-earned money in recent years have increasingly turned to target-date funds in 401(k) plans to prepare for future retirement. Some may also be able to consider exchange traded fund options, like quickly growing ETF managed portfolios in the separate accounts space.
Target-date funds currently dominate 401(k) plans, where $700 billion in assets under management could grow to $3.5 trillion in the next five years, according to Jud Doherty, President and CEO of Stadion Money Management.
Appealing as target-dates have been to now, recent marketplace advances may have exposed a key weakness: simply grouping participants by age may no longer be enough. “Participants’ lives are as unique as fingerprints; because each individual situation is so different, there can be no single-stroke solution,” said Doherty.
“Typical target-dates treat everyone the same,” Doherty told ETF Trends. “Yet each participant is distinct in terms of wherewithal, goals and time horizons. This underscores a clear need for personalization.”
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At the employer level, financial advisors can work with plan sponsors to customize ETF managed portfolios based on plan goals and demographics. For instance, Stadion offers ETF managed portfolios that are flexible to various investment needs.
The strategies are also competitively priced, investing in ETFs ranging from 0.09% to 0.40%, typically averaging 0.12% to 0.19% overall per strategy.
After that, individual participants in these flexible allocations can add personal financial information about where they are today and where they hope to be at retirement. Stadion’s software seeks to highlight and clarify the role participants’ must undertake in reaching their retirement goals. Further, according to Doherty, “Stadion’s newest portfolios allow 401(k) participants to dial up or down risk based on their individual situations, not be pigeonholed as investors into set strategies.”