The Glidepath Illusion: An International
Perspective

Abstract

Target-date funds have become a core product for investors who are saving for retirement. These funds periodically reduce their allocations to stocks and increase their allocations to bonds and cash, becoming more conservative as retirement approaches. This lifecycle strategy implies that investors are aggressive with little capital and conservative with much more capital, which may be suboptimal in terms of wealth accumulation. This article evaluates three alternative types of strategies, including contrarian strategies that follow a glidepath opposite that of target-date funds; that is, they become more aggressive as retirement approaches. The results from a comprehensive sample that spans more than 19 countries, two regions, and 110 years suggest that, relative to lifecycle strategies, the alternative strategies considered here provide investors with higher upside potential, more limited downside potential, and higher uncertainty—although that uncertainty is largely limited to how much higher their terminal wealth is expected to grow with these strategies.