Life-Cycle Fund
Candlefocus EditorIn essence, a life-cycle fund is an all-in-one investment portfolio, in which an investor can make an initial deposit, then the fund will make adjustments automatically based on the investor's age until they retire. The fund automatically diversifies the portfolio as the investor ages, shifting the focus of investments from equity exposure to fixed income exposure. In this way, the investor can achieve consistent returns that reflect their targeted risk level versus the market.
Most life-cycle funds start out with aggressive asset allocations when the investor is young, and become more conservative over time. This is because young investors can generally afford to accept a higher degree of risk in their investments. As the investor’s age and approach their retirement years, the fund’s asset allocation is shifted to become more conservative and income-oriented.
The primary benefit of life-cycle funds is that it helps investors become more sophisticated in their investing. It also helps investors to stay more disciplined, as the life-cycle fund will automatically rebalance the portfolio when the market changes to ensure that the investor’s goals are met.
Many investors struggle with analyzing their investments and determining when to buy or sell investments. Life-cycle funds provide the ideal solution to this challenge. Rather than having to constantly analyze investments and take risks, a life-cycle fund streamlines the investing process and eliminates potential mistakes.
Ultimately, life-cycle funds provide investors with an easy way to manage their portfolios throughout their investing life. By providing an easy, automated approach to managing investments, life-cycle funds are becoming an increasingly popular option among seasoned investors and beginners alike.