As target-date funds move to the mainstream of retirement investing, there have been notable innovations.
One new allocation for plan sponsors to consider, adding direct real estate investments to target-date funds, offers the potential to improve outcomes. Our research has shown that adding even just a 5% allocation to direct real estate improved risk-adjusted returns and retirement accumulations in most scenarios.
Until recently, no target-date mutual fund offered exposure to direct real estate. For those target-date funds that include real estate exposure, nearly all invest in shares of publicly traded real estate investment trusts, which generally have similar returns and volatility to other equities.
Adding direct real estate as an allocation, may offer four key advantages for multiasset portfolios: