Life Cycle Fund Definition | American News
Life cycle funds, also called target date fundare based on age mutual fund who adjust their allocations to stocks and bonds as you approach and enter retirement.
Lifecycle funds are designed to be all-in-one investment options for investors saving for retirement. Simply choose the fund with the date closest to when you want to retire, and the fund manager will take care of the rest.
Lifecycle funds work by mimicking how your portfolio should change as you prepare for retirement. When you’re further away from retirement, you can afford to take more risk with your investments because you have time to ride out market downturns. Thus, younger investors will often have higher allocations to equities.
As you approach retirement, your investment objective shifts from growth to protecting the assets you have accumulated. To do this, you usually need to increase your fixed income investments as these are known to be more stable than stocks.
Lifecycle funds do the adjustment for you by adjusting their allocations to equities and fixed income investments based on the number of years remaining until the fund’s target date. When the fund is further from its target date, it will hold more stocks, which are riskier but generally offer higher returns than fixed income investments like obligations. As the target date approaches, the fund becomes more conservative by reducing its exposure to equities and increasing the amount of fixed income securities it holds.
Lifecycle funds are one of the easiest ways to invest for retirement. They take on the burden of having to rebalance and adjust your portfolio allocation. Since most lifecycle funds are funds of funds, that is, mutual funds that hold other mutual funds, they are also very diverse.
Almost all the employer-sponsored plan will have a lifecycle fund option. To put such a strategy to work for you, simply choose the fund whose date is closest to your target retirement year.
These companies offer lifecycle funds:
- Investments of the American Century
- black rock
- Capital Group (US funds)
- Charles Schwab
- Dimensional Fund Advisors
- Loyalty investments
- Franklin Templeton
- John Hancock
- JP Morgan Asset Management
- Mutual of America
- At national scale
- Nuveen (TIAA)
- Prudential Financial
- Putnam Investments
- State Street
- T price. Rowe
- Diversification. Most lifecycle funds are funds of funds and invest in both equities and fixed income securities.
- Professional management. Lifecycle funds are managed by professional fund managers.
- Retirement planning made easy. Lifecycle funds take care of rebalancing and asset allocation, so you don’t have to worry about rebalancing or adjusting your allocation as you approach retirement.
- All-in-one wallet. A lifecycle fund could be your only investment and you would still have a diversified portfolio.
- Cost. Lifecycle funds can have high fees.
- Predefined allocations. Lifecycle funds are designed to accommodate the average investor with a given target retirement year, so they may not be suitable for your particular situation.
- Retirement income not guaranteed. Although lifecycle funds are designed to meet your needs throughout retirement, the income produced by a fund is not guaranteed, so you can supplement with other sources of income.