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1.
Two life-cycle funds with the same target date will likely earn different returns.
True. Two life-cycle funds will likely earn different returns because they hold different portfolios inside them.
2.
What is the underlying rationale of the life-cycle fund approach?
The greater the number of years you have until retirement, the more willing and able you are to tolerate risk. For a given risk level and time horizon, there is an optimal mix of stock, bond and cash-equivalent funds that provides the highest expected return.
3.
Which is an advantage of life-cycle funds?
They eliminate the need to adjust the asset allocation within your portfolio on your own as you progress toward retirement. They automatically become more appropriately conservative as the years go by as you approach and enter retirement.
4.
Life-cycle funds eliminate _______.
The need to adjust asset allocation on your own. These funds take care of that on their own.
5.
The huge number of stocks held in the mutual funds held by a life-cycle funds spreads the associated expenses and thereby reduces the overall cost.
False. There are a large number of funds involved in the "fund of funds" approach. Each of those underlying funds has an expense ratio, which tends to increase the overall cost of managing them.