ADJUSTING TARGET-DATE FUND GLIDE PATH FOR THE RELATIVE VALUATION OF THE S&P 500
Open Access
Author:
Phelps, Kevin Lloyd
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
James Alan Miles, Thesis Supervisor Dr. Brian Spangler Davis, Thesis Honors Advisor
Keywords:
retirement 401k defined contribution target-date funds asset allocation
Abstract:
This thesis evaluates different equity/bond asset allocations in defined contribution plans
over a 45-year time horizon. Specifically, it compares a target-date fund with a traditional glide
path to four different static allocations, a heuristic allocation, and a dynamic allocation with a
glide path that adjusts based on the relative valuation of the S&P 500 compared to its historical
average from December 1971 – November 2016. A bootstrap simulation of theoretical savings
accounts invested using these allocations reveals that it is possible to achieve superior riskadjusted
returns when glide path is adjusted for equity valuations, barring no excessive
transaction costs of rebalancing.
