Funds Beginner: Life-Cycle Funds

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1.
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.
2.
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.
3.
Once you have chosen a life-cycle fund for your retirement, _______.
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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.
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.
5.
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.