BOSTON, Sept 26 Fidelity Investments, the largest U.S. provider of target-date retirement funds, said on Thursday it will make the investments more aggressive and riskier, with a heavier weighting in stocks, in part because more and more Americans are delaying retirement.
Fidelity's chief rivals in the target-date arena, Vanguard Group and T. Rowe Price Group Inc, already offer funds with heavier stock weightings.
Boston-based Fidelity said that under the changes, the Fidelity Freedom 2020 Fund, for example, will have 61 percent of its assets in domestic and international stocks, up from a current target of 53 percent. Freedom Funds are designed for investors expecting to retire around the year indicated in each fund's name.
Among rival funds, the T. Rowe Price Retirement 2020 Fund is more aggressive, with 68.1 percent of its assets in stocks at the end of June. Vanguard's 2020 fund had about 65 percent of its assets in stocks.
Fidelity has more than $170 billion under management on behalf of 6.5 million investors in target-date investments that include Freedom Funds. Most of the assets in the funds are actively managed.
Target-date funds mostly allocate assets in stocks and bonds, based on what is appropriate for the retirement age of investors. The funds are designed to become more conservative as investors approach retirement.
Fidelity executives Derek Young and Bruce Herring said the company re-evaluated the risk capacity of investors and other assumptions, deciding a more aggressive approach is warranted. One reason is that the retirement age of Americans is being stretched out, giving them a longer horizon to recover from stock market corrections.
Young and Herring said there has never been a decline in stocks that took more than 19 years to recover. With that in mind, a 48-year-old investor can stay in stocks longer and with a heavier weighting, they said.
The executives said another changed assumption is how early people start saving for retirement. Herring said 20 years of age was probably too early for a starting date. "We upped that to 25," he said.
Since 2006, investments in target-date funds have mushroomed after the U.S. Pension Protection Act allowed companies to offer target-date funds to employees as a default option for 401(k) plans, with an automatic enrollment feature for new participants.
As Freedom Fund products and other target-date retirement products increase stock allocations, other asset classes, notably short-term debt, will decrease.
Over the next several months, all of Fidelity's target-date retirement funds, including Fidelity and Fidelity Advisor Freedom Funds, will begin to adjust their asset allocations.