Asset Management: Multi-Asset Insights

Building Better Target Date Funds

target-date-asset-mix

Executive summary

This paper explains some of the main risks investors face while saving for retirement and shares how BMO Global Asset Management’s approach in the BMO Target Date Retirement Funds addresses these risks. It also explains the process our Multi-Asset Solutions Team uses — and has been using managing multi-asset portfolios since 1994 — to design and manage BMO Target Date Retirement Funds, and how this process can benefit investors.

The face of retirement is changing significantly. Many people are extending their working years on a full-time or part-time basis after formally retiring. For many, retirement is evolving into a continuum rather than a fixed date. According to the Employment Benefit Research Institute’s 2014 Retirement Confidence Survey, more than a quarter (27%) of retirees surveyed said they have worked in retirement, while 65% of current employees surveyed plan to work during retirement. Meanwhile, many of these late-career workers also defer spending from their retirement savings as long as possible.

Aim, Allocate, Apply, AdaptFiduciaries who administer retirement plans aim to provide plan participants with broad investment options that will maximize the participants’ chances of retiring with sufficient replacement income and improve their chances of having enough funding to last their lifetime.

At the same time, plan administrators must keep a watchful eye on participants’ costs and be aware that market risk, inflation risk, shortfall risk and longevity risk (among other types of risk) affect target date fund outcomes. These risks can adversely affect returns, and in so doing, reduce the plan’s ability to achieve desired outcomes for its participants.

BMO Global Asset Management’s solution aims to reduce the complexity and the risk involved for retirement plan participants. Our Multi-Asset Solutions Team combines the insights of three groups of specialists: quantitative strategists who set the glide path — the strategic course of asset allocation over the duration of the fund; manager research professionals who evaluate and select managers for consideration in the portfolios; and portfolio managers who adapt the allocation to changing market environments. Together, the Multi-Asset Solutions Team allows BMO Global Asset Management to offer holistic solutions that address the problems facing today’s retirement investors.

 

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