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In February, Morningstar Inc. launched two families of indexes focused on asset allocation strategies—the Morningstar Lifetime Allocation Index series and the Morningstar Target Risk Index series. The indexes are designed to serve both as benchmarks for existing products and as the bases for products such as ETFs and mutual funds.
The Lifetime Allocation Indexes are designed as target date indexes. The series covers target dates set at five-year intervals ranging from 1995 to 2055, and follows the standard pattern of gradually shifting portfolio concentrations from equities to fixed income and Treasuries over time.
Unlike most target date indexes, however, the Morningstar Lifetime Allocation benchmarks are available in three “risk” categories—aggressive, moderate and conservative. Morningstar says that different investors have different risk tolerances, and that the one-size-fits-all approach of other target date indexes doesn’t make sense.
The Target Risk series features five indexes with risk profiles ranging from conservative to aggressive.
The composition of the indexes in both families is determined by an asset allocation methodology from Ibbotson Associates.
Target-date and target-risk strategies have been gaining more attention in recent years as more investors gain direct control of their retirement assets via 401(k)s and IRAs.
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