Target-Date Funds, Glidepaths, and Risk Aversion

14 Pages Posted: 14 May 2020

Date Written: April 19, 2020


Target-date funds feature asset allocations that become increasingly conservative as investors approach retirement. An important shortcoming of this strategy is that it is suboptimal in terms of capital accumulation, which begs the question of why these funds are so popular. A possible answer is that investors become more risk averse as they age, gradually favoring more downside protection as they approach retirement. The main issue explored in this article is how much more risk averse would investors need to become during their working years to select asset allocations similar to those in target-date funds; the evidence here shows that investors would have to roughly double their risk aversion during the last 25 years of their working period. An intuitive interpretation of this result, based on how much an individual would pay to avoid a gamble, is also discussed.

Keywords: target-date funds, glidepath, asset allocation, risk aversion

JEL Classification: G11

Suggested Citation

Estrada, Javier, Target-Date Funds, Glidepaths, and Risk Aversion (April 19, 2020). IESE Business School Working Paper No. ART-2664-E, Available at SSRN: or

Javier Estrada (Contact Author)

IESE Business School ( email )

IESE Business School
Av. Pearson 21
Barcelona, 08034
+34 93 253 4200 (Phone)
+34 93 253 4343 (Fax)

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