The study found that only 29% of people who invested in these funds as part of their company's retirement benefits used them as an all-in-one investment. About 49% invested in a life-cycle fund and one or more stock funds, and 22% of life-cycle fund investors even owned more than one life-cycle fund.
Eggs in One Basket
Vanguard's finding isn't surprising given that putting investment dollars in just one product causes well-earned shudders among those who have been burned by such a strategy.
"Ironically, one of the principles of sound investing that Americans have taken to heart may also pose a hurdle to life-cycle funds: the notion that one should never 'put all their eggs in one basket,'" Fidelity says on its Web site. "With additional education, investors should be able to understand that this clearly doesn't apply to a life-cycle fund."
But while life-cycle funds boast diversity as their best attribute, they're still composed of a single company's funds.
"Vanguard has good funds and it has underperforming funds. So does Fidelity and every other management company. But Vanguard is never going to say, 'Our funds haven't done well. We're going to recommend some T. Rowe Price funds for you'," says Altfest. "Why not pick from the best of the best ... Why limit yourself to the diet of any one company?"
Katie Benner
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