Funds Beginner: Life-Cycle Funds

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1.
Life-cycle funds eliminate _______.
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The need to adjust asset allocation on your own. These funds take care of that on their own.
2.
Two life-cycle funds with the same target date will likely earn different returns.
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True. Two life-cycle funds will likely earn different returns because they hold different portfolios inside them.
3.
What is the underlying rationale of the life-cycle fund approach?
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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.
4.
Life-cycle funds eliminate risk by investing in a broad universe of diversified mutual funds.
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False. Nothing can eliminate investment risk. Life-cycle funds aim to minimize it.
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.
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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.