Introduction to Life-Cycle Funds

Do you need to review what a mutual fund is?

Life-cycle funds, also known as target-date or age-based funds, have increased in popularity in recent years. Most of the big mutual fund firms now offer them. These funds are touted as a one-stop shopping approach to investing for a long-term or date-driven goal, such as retirement. They’re becoming more common in employer-sponsored retirement plans as companies try to make it easier for their employees to invest.

In years past, employees had to opt in to the employer’s retirement plan (e.g., 401k), and a stable, but low-growth money market account may have been the default investment option. Today, however, at many companies new employees may be enrolled automatically in a 401(k) plan unless they opt out, and a life-cycle fund may be the default investment option. In that way, employees who just don’t make retirement saving a priority are nudged into investing with a sensibly allocated portfolio.

Learn more about the risks of mutual funds, including life-cycle funds.