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The revolving drum of a cement-mixing truck had the slogan "Find a need and fill it." And I thought about how the proliferation of so-called "life-cycle" funds from the mutual fund industry could be a reflection of the same thought process.

Life-cycle funds represent an opportunity to put retirement investing on automatic pilot. The assumption is that people should have more money in bonds, as opposed to stocks, when they approach retirement.

In the old days, investors were encouraged to establish their own life-cycle-fund equivalent by taking their age and subtracting it from one hundred. The resulting number could be used to determine the percentage of a portfolio that should be in stocks.

This meant that someone age 20 should have 80 percent of his or her money in stocks and 20 percent in bonds. Someone age 70, by comparison, should have only 30 percent of that money in stocks and 70 percent in bonds.

About 20 years ago, a major financial institution based in the Bay Area offered an S&P 500 index fund and a bond index fund as two of its 401(k) investments. The annual expense ratio of each was 35/100ths of 1 percent. If you wanted the financial services giant to put a combination of these funds into its life-cycle fund, you paid 35/100ths of 1 percent.

It expected retirement plan participants to pay a full percentage point of earnings per year for the privilege of having someone else do the second-grade arithmetic outlined above. Unfortunately for a gullible investing public, it had plenty of takers.

Meanwhile, a few smart people just looked at the published mix of the life-cycle funds and did the mix themselves using the basic index funds in the plan. Saving the 1 percent during the past 20 years has increased the size of today's nest egg by 20 percent more than what the life-cycle fund would have produced.

There is nothing about a life-cycle fund that an investor can't create more effectively for himself or herself with a modicum of investment education.

Usually, these funds cost more than a do-it-yourself collection of the individual funds that make them up. Some indications are that fund families have used life-cycle funds as a dumping ground for their smaller, less popular or poorer performing funds.

Finally, there is no life-cycle fund that takes into consideration the other assets that we all own. Equity in a home, a possible inheritance and any other investment not destined for the life-cycle fund distort the arithmetic and subvert the basic purpose of the fund.

Someone approaching retirement with $200,000 of equity in a home and $300,000 in a retirement account already has what amounts to $200,000 in bonds. His or her home equity comes closer to being a bond than a stock. If that person ignores that fact and uses a life-cycle fund that allocates 60 percent of his or her retirement account to bonds, the next 30 years of inflation will cause him or her to run out of money well before their projected lifespan.

If you just follow the directions on the box (i.e. you have 20 years until retirement, so invest everything in this 20-year fund), it is a rare person whose circumstances fit perfectly with the sliding allocation changes of the fund. To make sense, these funds assume that everything you own will be invested with them, and this is rarely the case.

A better alternative is to do your own allocations. Use the funds -- but not as investments. Instead, use them for what they can teach. All such funds publicize what they have allocated between stocks and bonds.

Those who invest in their own fund family's other funds will show what the mix happens to be. The best performing of these funds lately have been those that invested more of the equity money in foreign funds. Meanwhile, the reason some of these funds show no annual expense ratio is because the ratio changes as the mix of funds changes. When the expense ratio is a moving target, it can't be stated.

Bottom line: Most people can do better generating their own mix of funds rather than blindly marching toward the life-cycle approach.

If you need some outside help, the extra annual expense is better spent on a fee-only financial adviser who can look at your entire financial picture. This is a better bet than paying a premium for a life-cycle alternative that easily could be misapplied.

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