BlackRock raises equity allocation in target date funds

Changes to LifePath Index come as other providers also have sought to increase equity allocations after retirement

Jun 25, 2014 @ 1:29 pm

By Darla Mercado

BlackRock Inc. today announced it would raise its equity allocation in its LifePath Index target-date funds, keeping younger investors fully invested in stocks even longer and bumping up stocks at the landing point of retirement.

Under the current LifePath glide path, investors are fully invested in equities when they're 45 years out from retirement, and their allocation falls until it reaches 38% in stocks at the glide path's “landing point” – when the employee exits the workplace.

This latest version holds the equity allocation at 100% until the worker is about 30 years away from retiring, at which point the equity exposure begins to decrease. At the landing point, the employee is now at a 40% equity allocation.

Chip Castille, managing director and head of the U.S. retirement group at BlackRock, noted that the updates reflect how investors feel about risk over the course of their lifetime, as well as other economic factors.

“For younger investors, we raised the allocation a bit; they stay in equities a bit longer,” he said. “That's reflecting investor risk preferences, the median growth of salary in the U.S. and expectations in the capital markets.”

BlackRock's decision to update LifePath Index's glide path comes at a time when other providers are taking notice of longer lives and the rising risk of workers running out of money, noted Daniel Culloton, associate director of fund analysis at Morningstar Inc.

“It speaks to the question of how much equity you should have after retirement,” he said. “It seems incrementally they've moved in the direction of increasing equity exposure after retirement, recognizing that lifespans are longer and, if they're longer, then your risk of ruin is higher.”

On Wednesday, BlackRock also announced it would add two new strategies to its LifePath target-date fund platform: LifePath CoRI, a strategy that's focused on retirement income, and LifePath Dynamic, which combines active and passive investing.

Plan sponsors can use the two new strategies alongside LifePath Index, noted Mr. Castille. “Imagine a situation where you want LifePath Index for your early investors; it's low cost and efficient,” he said. “Then you get older, and maybe your middle fund comes from the Dynamic family because you want the glide path to adjust to changes in capital markets in a more rapid fashion.”

At the end, as workers prepare to convert their savings to retirement income, the LifePath CoRI can come into play, he said.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Why some retirement plan advisers think Fidelity is invading their turf

InvestmentNews editor Frederick P. Gabriel Jr. and reporter Greg Iacurci talk about this week's cover story that looks at whether Fidelity Investments is stepping on the toes of retirement plan advisers.

Latest news & opinion

Speculation mounts on whether others will follow UBS' latest move to prevent brokers from leaving

UBS brokers must sign a 12-month non-solicit agreement if they want their 2017 bonuses.

Maryland jumps into fiduciary fray with legislation requiring brokers to act in best interests of clients

Legislation requires brokers to act in the best interests of clients.

8 apps advisers love for getting stuff done

Smartphone apps that advisers are using in 2018 to run their business more efficiently.

Galvin's DOL fiduciary rule enforcement triggers industry plea for court decision

Plaintiffs warned the Fifth Circuit that Massachusetts' move against Scottrade signaled that the partially implemented regulation can raise costs for financial firms.

Social Security underpaid 82% of dually entitled widows and widowers

Agency failed to tell survivors that they could switch to a higher retirement benefit later.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print