An essential guide to lifestyle/lifecycle funds
Few product innovations have been as well designed for the needs of retirement plans and retirement plan participants as asset allocation funds. In one fell swoop, the design offers a near magical clarity for what is frequently the most daunting of participant decisions; how to invest their retirement savings. Moreover, it offers the prospect of professional rebalancing on a regular basis an area that even the most diligent retirement plan investor frequently overlooks. The more recent introduction of target-date funds has made that choice even easier and it is a choice that has received tacit approval of the Department of Labor as a default investment alternative, to boot.
Still, any offering that makes it that easy for participants must come with a "catch." Consider that, in choosing these funds, you have the very same fiduciary standards for due diligence in fund selection that you have with any other investment option. However, many of these lack the kinds of performance track record or benchmark that has become a ubiquitous component of 401(k) plan menu selection. There is a general lack of consensus on what an "appropriate" asset allocation mix is, either in terms of how much of each asset class, or even in terms of how much should be invested in stocks versus bonds, much less how much should be in what kinds of stocks.
Moreover, fees are still all over the place some charge a "wrap" on top of the underlying funds and, while others don't, some take advantage of the opportunity to cobble together relatively high-priced retail share classes under the lifestyle umbrella. For some, their very point of differentiation lies in the exotic asset classes they incorporate in their model, and others depend on indexed structures. Some rely on models comprised solely of proprietary offerings, while others eschew that approach totally, and others rely on a mix. Some are built on mutual fund foundations, but these days funds structured around cost-effective exchange-traded funds (ETFs) and collective investment funds are increasingly common.
On the pages that follow, we attempt to offer a meaningful starting point for your evaluation of these offerings. Both date-based and risk-based offerings are presented, along with a sense of the size of the offerings, their wrap fee, and their underlying fund structure. More significantly, later this month we will unveil an interactive online version of an expanded database where you will be able to compare benchmarks, recordkeeping platform availability, and individual fund information. To that end, we gratefully acknowledge the helpful and willing cooperation of the providers whose names appear in our Buyer's Guide.
That's only the beginning - we'll continue to update this information in future months and we look forward to working with you as we develop this and other tools to help make your job easier.
- Nevin Adams
