We’ve all seen the target-dated retirement funds. These are portfolio’s created by mutual fund companies like Fidelity to weight securities based on age-associated risk, with hopes to leave the investor with enough money for retirement and protect from things like the Great Recession.
These have proven to be easy sells, and fit into a box. Retiring in 2025? There’s a fund for that.
In an interview with the RIA Channel, Joe Gordon of customizable wealth management specialist Gordon Asset Management and Jamie Atkinson of Swan Global Investments talk about how they partnered to devise a defined-risk strategy in a collective investment fund (or, CIF) for the 401k space. CIFs are less expensive than target-dated funds and are increasingly being used in defined benefit plans and 401ks.
Kelly Musico, president of MVP Plan Administrators — a third party administrator and record keeper of employee sponsored retirement plans — worked with Gordon and Swan to build a 401k product she believed to be more appropriate than cookie-cutter target-dated funds. She notes how the funds give investors a qualified default investment alternative, or QDIA, which mitigates risk in down markets, among other things. QDIA funds are almost always hedged to prepare for major market drawdowns. “It stair steps investors down in a risk-based, age-banded environment versus the target-dated fund,” she says of the Swan CIFs and QDIA funds in general.