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1.
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.
2.
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.
3.
Which is a disadvantage of life-cycle funds?
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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.
4.
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.
5.
Which is an advantage of life-cycle funds?
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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.