Target-Date Funds Emerge as Market Stabilizers
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Target-date funds provide aging-appropriate, diversified portfolios that automatically reduce risk over time by lowering allocations to stocks and increasing allocations to bonds.
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By systematically rebalancing, target-date funds behave as contrarians, stabilizing markets by trading against momentum.
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Research shows target-date funds dampened asset price fluctuations during recent crises by propagating stabilizing flows across asset classes.
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Target-date funds have started to reduce historical patterns like trend-chasing that may have contributed to anomalies like momentum.
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With assets expected to continue growing, target-date funds' stabilizing impact on markets is likely to become even more pronounced over time.