Question: How can I find the distribution of the 2010. 2020, etc plans? Could investing partially in these plans result in a similar investment strategy and outcome?

Response: The distributions of the Lifecycle funds change gradually over time. It’s fairly straightforward to figure out what they are at any given point in time. But you have to remember that whatever distributions you find, they will change with time.

The investment strategy of the Lifecycle funds differs from my strategy. Even though the distributions of the Lifecycle funds change with time, these changes are pre-calculated a long time in advance. We don’t know exactly how long in advance, but I suspect it’s years.

This means that the Lifecycle funds do not respond to changing market conditions. When stocks become more risky, the Lifecycle funds do not respond by shifting money out of stocks. When stocks become less risky, they don’t respond by putting more money in.

The Lifecycle funds accomplish what I call “static diversification”. They are diversified in the sense that they are invested in several different markets. But this diversification is static because it does not respond to changes in those markets.

By contrast, my approach does respond to changing market conditions. When stocks are more risky, I put no or little money in them. When their risk declines, I put more money in them.

In my opinion, the performance of the Lifecycle funds is relatively poor. The funds with the longer time horizon, such as L2040, have most of the money in stocks. Thus, they have had performance similar to the performance of stocks, including the huge recent drop. The funds with the shorter time horizon, such as LIncome, have most of the money in the money market. While this is a lot safer, it also limits the potential return.

For example, since the beginning of 2007, assuming you have not made any contributions to your account, the returns are as follows:

• LIncome: +7.08%
• L2040: -10.90%
• C Fund: -19.66%
• G Fund: +10.98%

Related posts:

1. Focus on return and risk, not price; losses are locked in as they occur
2. Holding Lifecycle 2010, almost
3. Welcome
4. Small caps in the lead
5. Guidance for newcomers to the newsletter

One Response to “Lifecycle allocations, strategy, and performance”

1. pingback from “Love your advice. Will follow it like a sheep.” | Peaceful Gains Newsletters
   October 7th, 2009 at 6:20 pm

   [...] you might want to subscribe to the RSS feed for updates on this topic.Got it. Now that I understand your strategy, I will follow your advice like a little sheep. A happy and grateful little [...]

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