Like the sirens of Odysseus fame, the lure of one-decision life-time funds sounds sweet and runs deep amongst investors and marketers alike.  The siren song appeals to something that is hard to resist, but will end badly.

These one-decision funds come in a variety of names, depending on the provider.  They are called life cycle, age-based, target date, lifepath, freedom, or one decision investments.  They have become very popular in 401k plans, and especially popular among younger participants.  Whatever the name, are they really a sound way to invest your hard earned money over time?

The idea behind life cycle funds sounds very appealing.  With the life cycle fund, diversification between stocks, bonds, and cash automatically changes over time based solely on its target date.  Their well entrenched historic precursor was the static allocation balanced fund.

A target date fund is one investment today based on your age with a fluid allocation toward stocks (more risk) or bonds (less risk) or cash that will change as you age from a young accumulator in your working years to an old preserver and distributor in your retirement times.

When you’re young, goes the argument, you should be aggressively investing because you have time to recover from losses.  When you’re old, you should be conservatively investing because you don’t have time to recover.

But really, what does your age actually have to do with the stock or bond markets?  Has anyone ever heard well respected investment gurus like Buffett or Templeton or Lynch ever say, buy this because you’re young or sell that because you’re old?  Instead they’ll affirm that what is more important than your age is the value of the markets.

Just as important to ask about these funds are the two questions about how the provider’s allocation was made in the first place and how will the allocation change over the target period?  The reality is each fund family arrives at a different percentage allocation based on their own internal assumptions.  Some looked at a snapshot of 50 years of data.  Others use less, but I’m not aware of anyone who looks at less than 20 years to determine their allocation models.  But again, what does that have to do with investment success?

Plug your ears to the siren song of easy.  The efficient frontier is real enough, but you can’t get there based on your age or such a long horizon.  Instead, focus on C, the risk-adjusted relative strength metric.