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Rekenthaler Report

The Craft (Not Science) of Asset Allocation

The math is exact, but the inputs and human considerations are not.

On Second Thought
Wednesday's headline on Ignites (a paywalled trade-industry site, no link) read, "Target-Date Funds Can't Beat 60/40 Funds: Study." I assumed the study compared the total returns of target-date funds to that of balanced funds--or possibly a customized benchmark--and found that target-date funds had trailed. Before reading further, I began to prepare my rebuttal.

Such research is commonly cited, and it's usually flawed. The performance gaps tend to be accidental. Inevitably, the two fund categories have different asset allocations. One has more stocks, or more foreign securities, or something else that fares relatively well, and it leads for the trailing five-year period. Then the markets reverse, and the other type shines. Its managers suddenly got smart!