Only it is rarely reflected on the part of employees

In a report which was loud, the US Senate was very critical of the life-cycle funds. He highlighted the significant heterogeneity on the part of their investments in shares and for products with the same date of retirement. Thus, for a purpose of planned active life in 2010, this part evolved from 24 to 68 according to management companies. Maintain a proportion of equity investments exceeds 50 at least two years of retirement outlines future retirees to major potential capital losses. Moreover, funds to life cycle maturity 2010 accused losses by 25 in 2008, the year of the great stock market correction.

Across the Atlantic, these products are mainly used in the defined contributions pension funds. Only, it is rarely reflected on the part of employees. This is the default option that chooses their employer for them when people don't start, a surprisingly common practice (1). Thus, these instruments are not integrated in a comprehensive approach to performance-risk desired by an individual for its portfolio and funds which it wishes to have after his career. His funds at maturity "lives his life" in his corner without any link with the rest of its investments. Their appeal lies in their simplicity, the individual has to indicate simply when he intends to retire: after having invested in a Fund, it only cares little, wrongly, with awareness painful shortly before the fateful deadline. These products are indeed poorly understood by individuals.

Too high costs

A survey conducted by Alliance Bernstein shows that more than one investor on two (58) believes that to achieve a level of acceptable diversification a lifecycle Fund must be associated with other funds. What is the opposite principle and logic of funds at maturity. Indeed, some have more, arguing that they ignore their next retirement date and are thus positioned on various maturities.

Constituted as funds of funds (funds investing in other funds) to 85 of them, these products are expensive addition. What is a major concern because they are supposed to be held a very long time. Where a further negative impact of the management boards. Thus, upon starting retirement, accumulated wealth gap can reach 20 between a fund mature at high and low cost, according to Nigel Lewis in his study (2). "The negative impact of the commissions is increasing also with the weight of investment in shares", he said. Another result, a conservative, investment life cycle Fund mainly on obligations, but whose costs are high, has a good risk stronger does not ensure the holder a level of wealth sufficient that an aggressive, yet more likely to be invested funds on shares and therefore more risky theory.

Moreover, each fund maturity, can associate a conventional diversified Fund characteristics (performance risk) and much lower costs. Competition on the commissions seems low-intensity within the lifecycle funds, which seem to escape any competitive pressure. A merrier for a few major players. Measurement of their performance is also delicate and difficult Fund comparisons given their very disparate asset allocations. Management companies that manage select each their own products and according to different rules excluding or focus on certain classes of assets.