The Allocation Crisis

Watch Matt Giovinazzo and Kellen Foley from the investment innovation team dive right into the asset allocation crisis to give you the why's and how's of participants' investment trends over the past few years. Target date funds (TDFs) are continuously coming out on top for long-term investment goals with minimal time investment from participants as long as the participants are invested in the correct, age-appropriate TDF.

• Matt Giovinazzo, Director, Investment Management
• Kellen Foley, Director, Investment Management

The allocation crisis begins with investors putting their assets in inappropriate funds for their age. Older investors are placing their assets in more aggressive funds, while younger investors are being more conservative when it should be the opposite. TDFs solve this exact problem by getting the professional management of funds in.

A significant issue is that investors pull out from TDFs during downturns, which have the most outflows of any asset class year to date. 60% of portfolio allocations are either all equity or all fixed-income when all money is moved out of TDFs.

Since participants defaulted into that 2035 fund, they have a preconceived notion of the risk level of a TDF; therefore, they panic and pull out when the market takes a downturn. We have slowly traded risk-based diversification and are moving toward age-based diversification. The professionally managed portfolios slowly incorporate risk-based diversification to create more balanced portfolios.

Matt and Kellen created a spectrum of various solutions that are available in the marketplace today and rated them on participant cost, personalization, and engagement. They go through each option and explain how they think about them in terms of cost versus personalization.

Are you looking for more insights? Download the presentation here.

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