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 Miles, Thesis Supervisor
  • Brian Davis, 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.