Folio Investing Celebrates Its Target Date Folios’ Five-Year Record of Outperformance

Folio Investing’s Successful ETF-Based Alternative to Legacy Target-Date Funds Offers Superior Diversification, Risk Targeting and Flexibility; Firm Seeks Distribution Partner to Broaden Availability

Folio Investing announced today that, over the five years since they were brought to market in December 2007, its Target Date Folios have significantly outperformed traditional target-date funds. The Folios have provided both higher returns and lower volatility than the competing funds during this tumultuous period.

Target Date Folios, like target-date funds, are designed for investors planning and saving for retirement.  A 2025 Target Date Folio, for example, is for investors who expect to retire in 2025.

“The performance of our Target Date Folios over the past five years proves that improved design and better diversification actually do provide tremendous value.  For many though, traditional target-date funds are the only available target-date choice in their retirement plans.  But, investors deserve better.   That’s why we believe it is important to join with a distribution partner who can bring Target Date Folios to a much broader base of investors,” said Steven Wallman, Founder and CEO of Folio, and a former Commissioner of the U.S. Securities and Exchange Commission.  “Target Date Folios can be offered not only as ‘Folios’, which are unique to the Folio Investing platform, but broadly as collective investment trusts and mutual funds,” Wallman said.

The Target Date Folios’ outperformance is due to a number of design initiatives pioneered and proven valuable by Folio Investing.

  • A Broader, More Robust Diversification Strategy.  Many target-date funds’ returns are, effectively, simply a blend of a U.S. bond index and a U.S. equity index fund, such as the S&P500.  When the stock market is especially volatile though, such a portfolio is also still volatile.  Target Date Folios are far more diversified, including not just U.S. stocks and bonds, but also commodities, REITs, Treasury Inflation Protected Securities (TIPS) and other asset classes.  Theoretically, the result should be lower volatility and higher returns at any given risk level.  And, that’s what Folio Investing’s Target Date Folios have proven over the last five years.
  • Greater Choice and Customization.  Target Date Folios come in conservative, moderate and aggressive risk levels for each target year, and uniquely can be further customized by investors or advisors as they see fit.  That allows the Target Date Folios to be a much better match to an investor’s needs than can be provided by any “one-size-fits-all” fund.
  • Intelligent Risk Targeting, Not Simple Asset Allocation.  Target Date Folios target specific risk levels over time.  By contrast, target-date funds traditionally target specific asset allocations over time.  But when market conditions change adversely, clinging to defined asset allocations means investors are exposed to far more risk than expected.  Target Date Folios, instead, use a changing asset allocation as the means to achieving targeted risk levels, as opposed to the asset allocation being the end itself.

The Target Date Folios’ five-year track record proves the power of these innovations in design. While mitigating risk, the Folios generated higher returns than their target-date fund counterparts.

Some Specifics

Specifically, the Target Date Folios for the years 2010 through 2045 (i.e., the Folios for target retirement dates at five year intervals including and between those dates) provided higher returns and lower volatility from their inception date, December 21, 2007, through December 31, 2012 as compared to the three largest target-date funds, for the same target-date years. The average annual return for Target Date Folios is, on average, 1% per year more than the largest target-date funds, which would have an enormous impact on portfolio returns over an investor’s lifetime.  For example, a range of analyses conclude that an increase in portfolio performance of 1% per year corresponds to a lifetime increase in wealth accumulation of 20%[1].

Even over just the past five years, the realized increase in portfolio value is substantial.

For example –

  • An investment of $100,000 in the 2025 Moderate Target Date Folio since its inception on December 21, 2007, would have been worth $116,900 at the end of December 2012, while the same investment in the three largest target-date fund families’ 2025 target-date funds would be worth an average of only $110,800.
  • An investment of $100,000 in the 2045 Moderate Target Date Folio since its inception on December 21, 2007, would have been worth $112,300 at the end of December 2012, while the same investment in the three largest target-date families’ 2045 target-date funds of $100,000 would be worth an average of only $106,300.

For a more detailed summary of Target Date Folios’ performance, view our quarterly fact sheet on Target Date Folios, as well as our whitepaper, “Improving Target Date Offerings: Lessons Proven” on our Target Date Performance Page.  In addition, Folio Investing Cumulative Gain/Loss data for Target Date Folios is available on request.

Related Links:

Folio Investing The brokerage with a better way. Securities products and services offered through FOLIOfn Investments, Inc. Member FINRA/SIPC.

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