Displaying items by tag: retirement

When an investor owns a target date fund, the asset mix shifts over time. For younger investors, the portfolio emphasizes equities and allocates less to long-duration fixed income. When investors get older and approach retirement, target-date funds reduce the equity exposure and add duration to fixed income. Tyler Thorn, a multi-sector portfolio manager at PGIM Fixed Income, told Pension & Investments that this is the opposite of how duration should be managed. He believes that a target-date fund’s duration goes in the wrong direction. He stated, “Instead of starting low and rising with age, it should start high and decline with age.” Thorn believes that younger investors need more duration exposure since they will be spending a lot more in the future. Thorn also believes that if these changes were implemented, they could make the 60/40 portfolio more viable.

Finsum:A PGIM Fixed Income manager believes that the 60/40 portfolio can be fixed if bond duration was managed differently.

If a new bill in the Senate gets passed at some point, ESG investing in retirement plans may become a thing of the past. On July 26th, Senator Mike Braun of Indiana introduced The Maximize Americans’ Retirement Security Act (S. 4613), legislation that would clarify that the fiduciary duty of plan administrators is to select and maintain investments based solely on “pecuniary” financial factors. Based on the legislation, pecuniary factors are defined as any factors that a fiduciary prudently determines are expected to have a material effect on the risk or return of an investment. The bill, which was co-sponsored by seven other GOP senators, would curb the Department of Labor’s efforts to make it easier for plan fiduciaries to consider ESG factors when selecting plan investments. ESG investing has become a hot political topic as of late, and its recent underperformance during the bear market has only further added to the scrutiny.

Finsum: With ESG becoming a hot political issue, GOP Senators introduced a bill that would curb the DOL’s efforts to make it easier for plan fiduciaries to consider ESG factors in plan investments. 

The bond market has had extreme difficulties as of late, and most investors are looking to annuities for an income alternative, but what questions should they be asking themselves. The first is what is the term of the annuity? Duration and commitment play a pivotal role in how you are assessing the asset. How much is the surrender charge? Look for de-escalating surrender charges if you may get out early. How does your annuity generate interest? Many indexed annuities can be linked to the markets like the S&P 500 which can give stock exposure without as much risk. Finally, can you withdraw early, and what are the liquidity constraints? You may want to be able to have a flexible withdrawal amount in case of emergencies.

Finsum: With more investors turning to annuities, it’s critical advisors understand why they are using them as a financial vehicle.

Everyone is racing to develop and deliver a new ESG product, and annuities are just the latest on this trend. BlackRock is teaming up with RetireOne and Midland National to deliver an SG option for a Fixed Index Annuity. The index will seek to minimize its exposure to environmental risk and invest in companies with lower C02 emissions, better data privacy, and workforce diversity. ESG assets as a whole could make up 50% or more of assets under management by 2025 and this is an indication of how that trend is entering other industries. Disclosure and ESG risks are prominent considerations for many companies.

Finsum: This is a great option for investors wanting income and ESG to tackle two birds with one stone.

Most think of millennials and they compartmentalize them into 3 categories: fee minimizers, crypto /alternative investors, or meme traders. However, a recent poll shows they have a strong desire for traditional income products. Over 82% of more affluent millennials are concerned with finding income products for retirement, which is almost 30 percentage points higher than Gen X. Additionally, almost a quarter of the poll were willing to purchase an annuity in the next quarter, and half of those were millennials. Many of these affluent millennials are looking to income products because they are skeptical that social security will be there for them in retirement.

Finsum: Millennials are bucking conventions and looking early to secure income products like annuities.