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1.
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.
2.
Life-cycle funds eliminate risk by investing in a broad universe of diversified mutual funds.
False. Nothing can eliminate investment risk. Life-cycle funds aim to minimize it.
3.
Once you have chosen a life-cycle fund for your retirement, _______.
You can switch to a different life-cycle fund if it meets your needs better. You can roll your fund over to a different one.
4.
Which is a disadvantage of life-cycle funds?
Many of the individual funds that comprise a life-cycle fund are likely to contain holdings in a number of the same companies. Therefore, the diversification you might be aiming for is not really there.
5.
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.