Even the world's top firms pay Ray Arnott for advice. He explains why a $1 trillion investing industry is built on a flawed premise — and why that's hurting retirement savings.

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Smart beta pioneer Rob Arnott explains how target-date funds adhere to flawed investing conventions, making them a poor option for retirement savings.

Rob Arnott, the founder and chairman the Pimco subadviser Research Affiliates LLC, is a man whose expertise is so respected that multiple large firms license his investment ideas.

Arnott's first task was to assess the time-honored tradition of weighting equity indexes by market capitalization. He instead backtested a technique that weighted stocks by revenue, and found that the approach had beaten its market-cap counterpart for decades.

He points out that target-date funds can often have the opposite effect that an investor intends. That means peoples' portfolios could possibly get riskier later in their careers — the exact situation they're trying to avoid.

 

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