The AAII Journal has an article about life cycle funds in the current issue:
"Choosing the right mix: Lessons from life cycle funds."
"Each life cycle fund represents a diversified fund of mutual funds that a mutual fund company recommends for typical individuals who anticipate retiring on a specific target retirement date."
"Jack is 32 years old with minimal understanding of investment issues."
He is overwhelmed by his choices in his 401k, and may go decades without rebalancing. Poor Jack needs the fund companies to help him out. Of course, other than an emergency fund he should keep all his investment money in the life cycle funds, because to do otherwise defeats their purpose.
Fund companies in the issue are: AllianceBernstein, Fidelity, T. Rowe Price, and Vanguard.
They all agree that you should:
Hold U.S. stocks, international stocks,U.S. high-yield bonds,U.S. high-grade bonds, and cash plus short term bonds.
No need to hold: international bonds, commodities, hedge funds, or structured products like index linked bonds.
Decrease stocks with age.
AllianceBernstein considers reits a seperate asset class while Vanguard and T. Rowe Price hold reits in stock funds and Fidelity holds them in stock and bond funds.
They are free to change their minds with your money:
"Three years ago, Vanguard and Fidelity recommended a 20% stock allocation for their ( only ) retiree fund, while T Rowe Price and another family recommended 35% or 40% for their ( only ) retirement fund.
Today, all four families that we studied recommend that the typical new retiree have at least a 50% stock exposure."
"In 2004 Fidelity and Vanguard recommended no international stock exposure for their retiree funds, while the other two families recommended international stock exposures for their retiree funds. Today, everyone except Fidelity seems to agree that international stock diversification has merit even for retiree's portfolios."
Yes, they are sure Jack has no idea what he is doing and needs their help. For a price of course.
From the article, recommended stock allocations by retirement date: 2015.
AllianceBernstein 74%
Fidelity 59%
T. Rowe Price 73%
Vanguard 66.7%
|
