Advantages of Using Life-Cycle Funds
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Advantages of Using Life-Cycle Funds
The "pros" of life-cycle funds are fairly obvious:
Things To Know
- Life-cycle funds eliminate the need to adjust the allocation within your portfolio as you progress toward retirement.
- Life-cycle funds are offered by the major mutual fund companies.
Simplicity
Life-cycle funds put your retirement investing on auto-pilot. They eliminate the need to adjust the asset allocation within your portfolio on your own as you progress toward retirement. They automatically become more conservative as the years go by as you approach and enter retirement. Thus, this investment product, by its very design, can replace to some extent the need for ongoing investment advice.
Remember, too, that you retain the freedom to depart from the life-cycle fund’s definition of the appropriate asset allocation mix for you. You can do this by picking a fund with a target date that’s farther from or closer to your expected retirement. In this way, you can achieve a more personally suitable balance between riskier growth and conservative income investments than the life-cycle fund targeted for your actual retirement date.
Professional management
Like other mutual funds, life-cycle funds are offered by the major mutual fund companies, with experienced managers running both the life-cycle fund and its component mutual funds. These people are hired to be experts in the asset allocation process—choosing the optimal mix of funds to try to offer the best expected return for a given degree of risk, and making appropriate changes as your retirement date approaches. In the case of actively managed life-cycle funds, their underlying mutual funds are run by folks who do research to find the most likely individual companies and fixed-income investments to try to provide the best possible returns.
