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Defined Contribution Quarterly 2Q 2022

Inflation Frustration

As we experience the highest levels of inflation in at least 30 years, many plan sponsors and plan participants are wondering how to offset the rising trend. Historically, equities have been the most consistent asset class when it comes to outperforming inflation, but will it be enough in this post-pandemic world?

In our latest Defined Contribution Quarterly, we discuss how ongoing market volatility coupled with inflation has led to market frustration for many in the DC space. We highlight various factors different plan participant types may wish to consider in the current environment, and provide a toolkit to help both plan sponsors and plan participants address inflation in a DC plan.

Key Findings

Asset Class Performance

The challenging market environment has led to near-term negative performance across multiple asset classes.

 

Source: Morningstar, as of 3/31/2022. Performance is annualized for periods greater than one year. Past performance does not guarantee future results, which may vary.

Defined Contribution Considerations for Inflation

Considering the impact of inflation across different participant types.

Investor Type

A do-it-for-me investor prefers to delegate to a professional who will devise an asset allocation strategy, where inflation will be taken into consideration. A do-it-myself investor prefers to build a portfolio from the investment options in the plan and will use a core investment menu to address inflation.

 

Investment Options

Professionally managed options, like target date funds and managed accounts, typically include inflation-sensitive asset classes in the glidepath near retirement or may personalize an account to an individual’s circumstances. Core investment options will incorporate a diversified array of options ranging from equities to capital preservation.

 

Investment Horizon

Younger participants with a long-term time horizon may view equities as an appropriate hedge against inflation, while older participants with a short-term time horizon may place emphasis on income or capital preservation.

Plan Sponsor Takeaways

 

Revisiting DC Investment Structure

 

It is important to have the right investment structure in place, with professionally managed options for participants who wish to delegate and diversified building blocks for those who wish to construct their own portfolios. 

Participant Communications

 

Ongoing communications with plan participants can help a plan steady the course during periods of volatility and inflation. 

Evaluate Rebalancing Tools

 

The incorporation of professionally managed options already include rebalancing tools; however, participants who construct their own portfolios will need to evaluate what rebalancing tools are available to them.


Participant Takeaways

 

Participation and Savings First and Foremost

 

A DC plan should be treated as a long-term savings vehicle helping participants reach their desired retirement goals.

Asset Allocation and Value of Diversification

 

There are important factors to consider when deciding asset allocation and whether to incorporate diversification. Over the long-term, public equities may serve as the best match to inflation but for those closer to retirement, a more diversified, age-appropriate asset allocation may be preferred. 

The Importance of Rebalancing

 

Those who consider themselves to be do-it-yourself investors must remember to rebalance their portfolio or they may unintentionally be out of sync with their original asset allocation. 

Related Insights

DISCLOSURES

THESE MATERIALS ARE PROVIDED SOLELY ON THE BASIS THAT THEY WILL NOT CONSTITUTE INVESTMENT ADVICE AND WILL NOT FORM A PRIMARY BASIS FOR ANY PERSON’S OR PLAN’S INVESTMENT DECISIONS, AND GOLDMAN SACHS IS NOT A FIDUCIARY WITH RESPECT TO ANY PERSON OR PLAN BY REASON OF PROVIDING THE MATERIAL OR CONTENT HEREIN. PLAN FIDUCIARIES SHOULD CONSIDER THEIR OWN CIRCUMSTANCES IN ASSESSING ANY POTENTIAL INVESTMENT COURSE OF ACTION.

The views expressed herein are as of 4/21/2022 and subject to change in the future. Individual portfolio management teams for Goldman Sachs Asset Management may have views and opinions and/or make investment decisions that, in certain instances, may not always be consistent with the views and opinions expressed herein.

THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO.

Prospective investors should inform themselves as to any applicable legal requirements and taxation and exchange control regulations in the countries of their citizenship, residence or domicile which might be relevant.

Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. We have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources.

This material is provided for informational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. This material is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and makes no implied or express recommendations concerning the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s investment objectives.

Economic and market forecasts presented herein reflect a series of assumptions and judgments as of the date of this presentation and are subject to change without notice. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. Actual data will vary and may not be reflected here. These forecasts are subject to high levels of uncertainty that may affect actual performance. Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. These forecasts are estimated, based on assumptions, and are subject to significant revision and may change materially as economic and market conditions change. Goldman Sachs has no obligation to provide updates or changes to these forecasts. Case studies and examples are for illustrative purposes only.

This material has been prepared by Goldman Sachs Asset Management and is not financial research nor a product of Goldman Sachs Global Investment Research (GIR). It was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. The views and opinions expressed may differ from those of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and Goldman Sachs Asset Management has no obligation to provide any updates or changes.

Confidentiality

No part of this material may, without Goldman Sachs Asset Management’s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the recipient.

© 2022 Goldman Sachs. Goldman Sachs & Co. LLC, member FINRA. All rights reserved.

Date of first use April 21, 2022.   276292-OTU-1595184

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