With the passage of the Pension Protection Act of 2006 and the Department of Labor regulation regarding qualified default investment alternatives, automatic enrollment and default investments featuring more equities are likely to become more popular. This analysis compares the investment performance of a balanced fund and a lifecycle fund, using average asset allocations observed on the market. Simulations show that the balanced fund is more likely to outperform the lifecycle fund, but its more aggressive approach also leaves plan participants vulnerable to losses as retirement approaches. The lifecycle fund is better at safeguarding wealth in a downward market, while still doing a reasonable job of building wealth. The typical lifecycle fund, however, with a large cash position at retirement, forgoes hedging opportunities for the purchase of immediate life annuities. Neither fund is a sure win over the near-risk-free Treasury Inflation-Protected Securities

Mark J. Warshawsk Gaobo Pang

Research Reports from Watson Wyatt Worldwide

References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.watsonwyatt.com/repecarticle/DefaultInvestmentOptions.pdf
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www.watsonwyatt.com:80 (No such host is known. )

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:www:resrep:2

Access Statistics for this paper

More papers in Research Reports from Watson Wyatt Worldwide
Bibliographic data for series maintained by Watson Wyatt ().