Better Target Dates?

May 24, 2007

The invaluable Fund Action reports that Dow Jones is considering adding REITs to its target date indexes. It's about time. The old-school split of bonds and stocks seems almost archaic in an age of easy, low-cost access to gold, commodities, broader ranges of international exposure, etc.

I’m always a proponent of keeping things simple, but from an investor’s perspective, it doesn’t matter if a target date portfolio has two or ten assets; people just buy one fund. With these new tools available, why not provide more diversified exposure, with more alternative asset classes that provide uncorrelated returns? That’s increasingly important as the traditional diversifying assets (large-cap international, small-cap US) increasingly move in lockstep with the rest of the US market.

 It’s not clear if Dow Jones would amend existing indexes, or create an entire new line of indexes as it adds the REITs. The portfolio sub-advisor says that REITs would be welcome as an uncorrelated asset class. I wonder if other assets wouldn't be welcome as well.


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