120 minus your age is how much of your investment portfolio you should have invested in stocks, thats what the old adage says anyway. So, with the advent of all these target retirement/lifecycle funds, we can now compare how the professionals allocate assets in an easy and transparent way. Since target retirement type funds are still pretty new and everyone is still trying to get their asset mix correct, its interesting to see how different brokerages differ in their offerings.

Process: What Ive done is taken the target retirement and lifecycle funds at Vanguard, Fidelity, and T. Rowe Price and compared them against the 120 minus age rule to see how they differed. I assume that the year is 2006, assume retirement is at 65, and extrapolate the stock percentage as 120 minus age, which I extrapolate. For example, given Vanguards Target Retirement 2040, Ill assume that the current age of an investor is 25, for a recommended allocation of 95% (120 25) compared to an actual allocation of 87.72%, a deviation of -7.28%.

The numbers will follow but here are some takeaways (I didnt do any statistical analysis, this is just me eyeballing numbers and drawing conclusions that are probably not statistically significant):

• The rule of thumb is certainly good in terms of rules of thumb, I wouldnt follow it to the ends o f the Earth but its definitely better than nothing.
• None of the three seem to follow the rule with any sort of consistency but they are all in the ballpark of the rule, but not by much.
• Of the three, Vanguard is the closest to following the rule with T. Rowe Price between somewhat more aggressive and Fidelity being somewhat more conservative.
• Whats interesting is that all three brokerages are more conservative than the rule recommends on the fringes, than they are in the middle of your career. Vanguard is more conservative than the rule on the fringes (in retirement, far from retirement) and more aggressive than the rule in the middle (9-15 years away from retirement). Fidelity is just basically more conservative than the rule across the board but even more conservative in the fringes. T. Rowe finds itself more aggressive than the rule across the board but ratchets back that aggressiveness if youre in or far from retirement.
• Matt adds this excellent point (from comments below) that I didnt even consider: People in their 20s and 30s are generally laid-back about retirement, and unlikely to be worried about about a point or two here or there on their return rate. People in their 60s and up are beyond the point where greater returns will help them much. It’s the 40s and 50s folks that are (in many cases, justifiably) panicking about how much they’ve under-saved, and feeling a desperate need for higher returns to help their late-coming contributions make up for lost time. A fund targeted at people in this age bracket will sell better if it overinvests in stocks, relative to the conventional wisdom.

Numbers after the jump.

Vanguard Target Retirement Funds