Life Cycle Investing: From Target-Date
to Goal-Based Investing

Abstract

The authors propose the use of goal based investing—or private ALM, as they prefer to call it—to tailor a dynamic investment strategy to the needs of individual clients. They argue that this approach is superior to the “one-size-fits-all,” target-date-oriented static allocation path used in most current life cycle funds. They present the two pillars of their approach: the methodology for obtaining financial and economic scenarios, and the methodology of the goal-oriented dynamic allocation strategy. This approach reduces the risks and improves the feasibility of meeting the clients’ goals.

TOPICS: Retirement, portfolio construction, simulations