Should target date funds make explicit allocations to hedge inflation? And if so, at what point in the glidepath does hedging become appropriate? Retirement purchasing power faces decades of inflation risk, yet there has been surprisingly little research into inflation hedging within a lifecycle consumption framework. This paper seeks to quantitatively solve the inflation hedging question, considers the question of hedging and opportunity cost, and offers fresh insights into the relationship between human capital and inflation. Finally, it describes how BlackRock expanded its innovative target date optimization to incorporate inflation.
Authors:Vincent Cocula, PhD, Director, Global Lifepath Research® And Development, Multi-Asset Strategies Lifepath Group; Fiona Sloof, Associate Researcher, Multi-Asset Strategies Lifepath Group; Matthew O'Hara, PhD, CFA, Managing Director, Co-Head Of Lifepath, Multi-Asset Strategies Lifepath Groupview more white papers
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