Nostalgia, Baby Boomers and Target Date Funds

Nostalgia Boomers TDFs

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Even though Yogi Bera says, “Nostalgia ain’t what it used be,” there’s a lesson to be learned from 1960s muscle cars—loved by Baby Boomers—that applies to today’s target date funds. In a 7/14/23 Financial Advisor article, author Steve Gresham says:

Image supplied by Ron Surz

“The baby boomers don’t just dominate the financial industry. If we continue to ignore their very clear preferences for financing retirement—they will be the facilitators of whatever and whomever replaces us. They have the power.”

In his article, Mr. Gresham draws analogies between the 1960s auto industry and today’s retirement investing industry that is ignoring the crying demand for retirement with dignity, observing that:

“Detroit’s problem wasn’t just the safety of its cars. It was also a pervasive and persistent indifference to consumer preferences.”

And in the case of the current retirement industry:

“76 million baby boomers, together with their children and aging parents represent more than a third of the U.S. population. They own half the nation’s wealth and do 70% of its consumer spending.”

There will be a price to pay for harming Baby Boomers in the next market crash. It’s different this time because most Boomers are in the Risk Zone in the decade of the 2020s, which means that investment losses can irreversibly reduce standards of living for the remainder of life and place a great burden on a society that wants to support its elderly.

The analogies

Today’s target date fund (TDF) industry is like the auto industry of the 1960s with “risk-on” powering thrills that will become chills in the next market crash. The typical TDF is 90% in risky equities and bonds at its target date. Here’s a summary of the similarities:

2008 flashback

The last time TDFs had significant losses was in 2008 when the typical 2010 fund lost more than 30% but that was quickly forgotten. The next time will be different because now baby boomers are in transition from working life to retirement, so their savings are at their peak. Losses now hurt much worse than losses back in 2008.

Conclusion

The unwillingness to protect Baby Boomers in their TDFs will prove disastrous to Boomers and the companies that manage TDFs. It’s a shame that pain will be the catalyst for doing what is right. We will re-learn the lessons of the 1960s auto industry.

Baby Boomers have spoken. They want to be protected. They are not getting the protection they want and deserve.

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