Sep 1, 2010 Report No：10-11
The Portfolio Size Effect and Lifecycle Asset Allocation Funds: A Different Perspective
Basu and Drew (in the JPM Spring 2009 issue) argue that lifecycle asset allocation strategies are counterproductive to the retirement savings goals of typical individual investors. Because of the portfolio size effect, most portfolio growth will occur in the years just before retirement when lifecycle funds have already switched to a more conservative asset allocation. In this article, we use the same methodology as Basu and Drew, but we do not share their conclusion that the portfolio size effect soundly overturns the justification for the lifecycle asset allocation strategy.
|Keywords||lifecycle funds, target date funds, retirement planning, asset allocation, portfolio size effect|