Target Date Fund Performance Through September, 2019

Contributor
Ron Surz
Published
  • Long dated target date funds have earned 15.5% on average, and near dated funds have earned 10.79%.
  • Our Prudence Index, the patented Safe Landing Glide Path®, has lagged this year so far.
  • Best Asset Classes: Real Estate and US Stocks. Worst Asset Classes: Commodities and Foreign Bonds
  • Best US Styles: Mid Cap Growth and Core. Worst US Style: Small Value

Target Date Funds

At $2 trillion and growing, target date funds (TDFs) are the biggest deal in 401(k) plans. Also, the $800 billion Robo advisor industry is built on TDF glidepaths. Here’s how TDFs are doing so far this year.

It’s been a good year for TDFs so far, through September, 2019. Long dated 2050 funds have earned 15.5%, capturing much of the US stock market’s 21% rise. The more conservative “Today” funds have earned 10.79%.

Our Safe Landing Glide Path (SLGP) prudence benchmark has lagged in all vintages. As shown in the “Mountain Chart” below, the SLGP is much more defensive in near dated vintages. The long-dated SLGP funds have lagged due to bond maturities being shortened in 2014 because the yields do not justify the risks.

The SLGP has a history of success in the face of challenge. All vintages were the best performing in 2008, 2011 and 2018, and has won by not losing over the history of TDFs.

Jan-Sept, 2019 returns
SLGP/SMART vs. Industry/Vanguard

TDFs are funds-of-funds holding various asset classes and investment styles, so it’s important to understand what has been working and what hasn’t, as discussed in the following.

Markets

So far, so good. Every asset class and every US stock style has earned positive returns this year so far. The word “bubble” appears every day in numerous articles. US stocks are continuing their unprecedented run. Real estate has surged this year. US interest rates threaten to plunge below zero.

At the same time, there may still be bargains in segments that are lagging this year like commodities. Importantly for “Smart Beta” investors, small cap value stocks are lagging other US stock styles, so many Smart Beta portfolios are not looking so smart. Will they be redeemed in the fourth quarter?

What is your outlook for momentum and reversals?

Asset class returns for Jan - Sept
Morningstar style indexes

Conclusion

Despite the current good fortune, or perhaps because of it, market observers see a recession on the horizon, largely because the current recovery is the longest on record, it’s global, and it’s running out of steam. Are you concerned? If so, you may want to move to safety. But what is safe, and what if your portfolio is already as safe as it should be? Please take our risk assessment quiz.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Retirement
Ron Surz

Ron Surz

Ronald  Surz is co-host of the Baby Boomer Investing Show and president of  Target Date Solutions and Age Sage, Target Date Solutions serves institutional investors, namely 401(k) plans. Age Sage serves do-it-yourself individual investors. His passion is helping his fellow baby boomers at this critical time in their lives when they are relying on their lifetime savings to support a retirement with dignity, so he wrote a book Baby Boomer Investing in the Perilous 2020s and he provides a financial educational curriculum.Ron Surz is president of  Target Date Solutions, developer of the patented Safe Landing Glide Path, Soteria personalized target date accounts, and Age Sage do-it-yourself investing. He is also co-host of the Baby Boomer Investing Show.

Read Ron's Bio