Preparing for Retirement with a Life-Cycle Fund

The life-cycle fund provide investors with a customized retirement strategy. While these funds have been around for years, they have really grown in popularity in recent years. Here are the basics of the life-cycle fund and how they work.

What Are Life-Cycle Funds?

With this type of fund you are investing with a specific objective in mind. You choose a retirement date, and then start putting money into the fund. The fund managers take care of the rest. You do not choose any specific investments, such as stocks, bonds or CDs. You just keep putting money into the fund, and it allocates the money into the proper channels for you.

You will be required to determine how long you plan investing and how much money you want to have when you retire. The fund will take care of the actual details for you. This was designed to create a very hands-off approach to retirement investing. It is a very popular tool utilized in many 401(k)s and IRAs in today's market.

Reallocation

One of the great features of this type of fund is that it reallocates your investment money as you go. For example, when you're younger and takes a more risky approach investment. This allows you to grow your portfolio more quickly while you are young. It aims to maximize the amount of shares that you have and therefore, you can take advantage of market moves over the years.

As you grow older, it reallocates the money into safer investments. For example, during the early years of the investment it might have a majority of money allocated into stocks. This allows you to make steady gains in your portfolio. Then, once you get closer to retirement, it moves more of the money into bonds. This provides you with a lower risk investment since the time before retirement a short. Therefore, you will not be risking your retirement dollars on any particular stocks.

Fund Differences

While all life cycle funds aim to accomplish the same result, they are not all created equally. Many different investment companies offer these funds and they are all a little bit different. One company might charge more for fees that another. One company might take a more aggressive approach while another one takes a safer approach throughout the entire investment. Each type of company can appeal to certain types of investors. Therefore, you have to shop around in order fund the fund is right for you.

Benefits

  • Convenience- One of the major reasons the people invest in life-cycle funds is the level of convenience that it provides. You can simply pick a target date, start investing money, and not worry about it. It is one of the easiest retirement investments available.
  • Passive investment- This type of investment does not require a lot of research. Most people do not like to spend a lot of time looking over their investments. This enables investors to automatically take care of their retirement without constant management.
blog comments powered by Disqus
Scottrade