Target-date funds (TDFs) can be fantastic retirement savings tools. Many are well-diversified, cost-effective, and automatically reduce risk for investors as they approach retirement.

Theres a problem though. Most hold bonds in their early years when young investors are protected from portfolio balance declines by relatively large contributions to accounts with relatively small balances. They also rarely include meaningful amounts of small-value asset classes which historically have improved returns over the long haul.

To offset this over-conservatism, we proposed a simple solution: multiply the investors age by 1.5 and use that as a percentage to invest in a TDF, then put the rest into an all-equity fund. In backtesting, this approach outperformed a pure TDF approach in more than 99% of the 576 overlapping 40-year periods tested, and only increased dips in portfolio balances (drawdowns) by 2% to 6%. Heres the summary data from that study. Please see that article for detailed descriptions.

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Here are the two funds you need before and after retirement - MarketWatch