“After the 2008 financial crisis, target-date funds received a lot of criticism because many near-retirees lost about a third of their savings in those products. Following that, some fund providers reconsidered the glide paths they use, in some cases slightly lowering the stock allocations near the fund’s target date. However, that short trend faded, and it’s now common to have 50% or more of assets in stocks. The idea behind higher equity allocations is that retirement spans decades, and target-date investors often need significant return potential early in their retirement years to help make their assets last.
Regardless, target-date funds with 2025 vintages that had lower equity allocations still saw double-digit negative returns last year, according to the Morningstar report published Tuesday. For example, the John Hancock Preservation Blend Portfolio, with an average equity allocation of 20.2%, had a negative return for 2022 of -12.7%. The Dimensional Target Date Retirement Income Fund, at 31% equity, lost -20.1% during the year.”
Morningstar Report, March 29, 2023
