Asset Allocations and Risk-Return Tradeoffs of Target-Date Funds

17 Pages Posted: 12 Jul 2009 Last revised: 18 Oct 2009

Date Written: October 15, 2009


This stochastic simulation analysis examines the risk characteristics of target-date funds focusing on the trade-offs between wealth creation and security. The dynamic portfolio adjustment of marketed target-date funds, with varied asset allocations, along age and various time horizons is shown. The probability distributions of account balances are produced using a vector autoregression simulation model of asset returns with the overlay of rare catastrophic financial and economic events. The risk-return tradeoffs associated with equity exposure, particularly for workers approaching retirement, underscore the importance of full disclosure, realistic assessment of risk tolerance and participant behavior, and due consideration of income strategies at and during retirement.

Keywords: target-date fund, asset allocation, retirement accounts

JEL Classification: G11, G23, D14, D81

Suggested Citation

Pang, Gaobo and Warshawsky, Mark J., Asset Allocations and Risk-Return Tradeoffs of Target-Date Funds (October 15, 2009). Available at SSRN: or

Mark J. Warshawsky

Towers Watson ( email )

Arlington, VA
United States

No contact information is available for Gaobo Pang

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