Researcher Noah Beck says there’s a much better portfolio strategy to use than target-date funds’.

Two-thirds of a trillion dollars have been invested in creating a glide path to retirement through target-date funds, but that investment industry-promoted soft landing is not needed and actually counterproductive.

So argues Research Affiliates researcher Noah Beck in the Newport Beach, California, firm’s November newsletter, expanding on the previous month’s critique of target-date funds by firm founder Rob Arnott and researcher Lillian Wu.

Target-date fund assets have swelled ever since the government sanctioned TDFs as qualified default investment options (QDIAs) for retirement plans.

The portfolios automatically shift from more aggressive equity holdings for younger workers to more conservative bond holdings for workers nearing retirement. That allocation reflects the conventional wisdom that a younger investor has a longer time horizon and should therefore assume greater risk in order to boost long-term returns. Those on the cusp of retirement cannot expose their portfolios to such volatility, traditional thinking holds.

Arnott and Wu had argued that this conventional wisdom ignores empirical evidence that younger workers with less secure employment and scant savings are far likelier to raid their retirement accounts to meet basic living expenses.

Since they’re also more likely to lose their jobs in a recession, which in turn is likelier to occur following a market crash, younger people who accept the conventional wisdom and invest in risky assets will end up redeeming shares when they’ve fallen in value, in addition to paying taxes and penalties.

Thus target-date funds force the young to gamble away their safety nets. To this grim picture, Beck adds a further critique of TDFs, arguing that they’re founded on the false assumption that they represent the totality of an employee’s retirement funds.

A broader view of a worker’s assets and income reveal the existence of a natural glide path common to both millennials and boomers that TDFs dangerously distort.

So, for example, data show that the largest source of an average retiree’s income—over 35%—comes from Social Security. In investment terms, inflation-adjusted Social Security income functions very much like TIPS.

Add pension distributions, which make up over 17% of the average retiree paycheck, and now you have over 50% of retiree income sources with bond-like characteristics.

So, prior to any distributions from target-date funds, the average retiree already derives most of his income from fixed-income sources to which millennials lack access.

Millennials, on the other hand, have a wealth of human capital, which the Research Affiliates researcher likens to stocks because this asset increases slightly faster than inflation over the long term but can suddenly diminish or disappear during a recession.

Moreover, millennials are typically saddled with debt based on the investments they have made in a college education or in buying a first home.

As they progress through life, workers pay down these debts, “in effect buying back their own bonds and deleveraging their balance sheet,” Beck writes. “Retirees generally have very little debt remaining; some even have none left at all and live rent- and mortgage-free in their own home. Should boomers that are buying down their debt also be compelled to buy additional debt securities (a.k.a., bonds) in a TDF?”

The conventional wisdom embedded in TDFs therefore urges the young, who are naturally invested in stocks (through their human capital) to buy more stocks while inducing bond-heavy (through Social Security and pensions) retirees to buy more bonds.

“If the conventional goal is to have a riskier balance sheet as a young adult and a safer one as a senior, then that goal has already been accomplished outside one’s DC plan. For many investors, the glidepath to retirement is already in place,” Beck writes.

That natural glidepath consists of an equity-like portfolio for the young, a balanced portfolio for mid-life and a fixed-income portfolio for retirees.

With that glidepath naturally in place, millennials and boomers—ironically—should be investing the balance of their portfolios more similarly than the TDF concept suggests.

“Baby boomers who expect to receive 40% of their retirement income from bond-like sources such as Social Security and defined benefit distributions might consider dividing their remaining assets more or less equally among mainstream stocks, mainstream bonds, and a third pillar of inflation-hedging assets such as TIPs, high-yield bonds and low-volatility equities,” Beck recommends.

That is quite similar to Arnott and Wu’s recommended “starter portfolio” for the young, which they would allocate in equal thirds to stocks, bonds and “diversifying inflation hedges” (which include TIPS, low-volatility equity, high-yielding bonds or moderate amounts of REITs and emerging market stocks and bonds).