Stadion Money Management created a new target date solution that's designed to mitigate the one-size-fits-all "Achilles heel" of traditional target date funds.
With TargetFit, Stadion aims to address this and other limitations of traditional target date strategies while keeping the ease of use and familiar structure.
"We see a move towards giving participants more than just a one-size-fits-all solution, which is the way most target dates are built," C. Todd Lacey, chief business development officer at Stadion Money Management, told ThinkAdvisor. "So your traditional target date funds, they've served a great purpose but they've been somewhat limited in their approach, meaning every person is invested the exact same way based on their age."
While the number of target date funds has grown significantly in recent years, their overall construction has largely stayed the same. They generally offer one glide path and often times invest in only a single fund family.
"Target dates have been around now for maybe 15 years. They have probably close to a trillion dollars in assets in them, and they're in many cases the single biggest holding in any 401(k) plan. And they're great when you compare them to people doing it on their own," Lacey said. "But the next question is are they good enough? And we're really looking at it as we think we can make them better for participants."
There are three specific ways that TargetFit is trying to make target date solutions better: multiple glide paths, participant education and exchange-traded funds (ETFs).
TargetFit offers three distinct target date fund glide paths.
"What we've tried to do with TargetFit is create optionality based on people's risk profiles," Lacey explained. "So if you're more aggressive and I'm more conservative in our investor profile, we have different glide paths that we would be on."
The three glide paths offered are for a "conservative" investor, or someone who is cautious about their savings and investment choices; a "moderate" investor, or someone who doesn't mind taking some risks with their savings; and a "growth" investor, or someone who is more aggressive with investing their money and isn't fearful when their investments fluctuate.
Stadion believes that there are fundamental misunderstandings that investors have about target date strategies.
According to Lacey, some participants invest in multiple funds as they attempt to diversify their investments, even though each one has diversification built in.
