Life Cycle Funds
Life cycle funds are marketed as a maintenance-free way for individuals to invest for retirement. They were created under the assumption that many individuals needed a one-stop investment vehicle that properly rebalances their portfolios over their investment lives, as their investment needs change. Typically, in an individual’s younger years, riskier but higher-return potential assets should be emphasized, but as the individual approaches retirement, the percentage commitment to these types of investments should be gradually reduced. Life cycle funds are designed to follow this investment pattern.
At first, life cycle funds were limited to mutual funds, but over the years, life cycle exchange-traded fundshave been created.
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How It Works
Life cycle funds are designed to be a “set it and forget it” type of investment. You pick a fund based on your expected retirement age or risk preferences and, theoretically, do not have to take any action, or perhaps only a small action as you near retirement. Life cycle funds have fixed allocations based on either a target retirement date or risk preference, meaning you do not have to actively rebalance your portfolio.
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