The Pros and Cons of Life Cycle Funds

Life cycle funds are a type of investment that is commonly offered as part of retirement portfolios in today's market. This is a type of mutual fund that utilizes changing asset allocation to provide a balanced portfolio for retirement savers. This strategy can provide you with a number of advantages, but there are a few disadvantages to watch out for also. Here are some of the pros and cons of life cycle funds.

Pros

One of the biggest advantages of this strategy is that you will get professional management. This means that you will be able to take advantage of a "hands-off" type of investment. You will not have to worry about choosing the individual investments for your portfolio or anything else. The fund manager will take care of everything for you. You simply keep investing in the fund and the fund manager will handle the investment aspect for you.

Another advantage of this type of fund is that the risk will change depending on how old you are. When you are younger, you have plenty of time to make up for investing mistakes by making more money. However, when you get close to retirement, you need to be able to lower the risk in your portfolio so that your retirement dollars are not being risked. Life cycle funds do this automatically for you. As you get closer to retirement, more of your money gets allocated to bonds and other safer investments. This allows you to continue to generate some returns without the high levels of risk that you previously took on.

Cons

Even though this type of investment can be beneficial, there are a few potential drawbacks for you to be aware of. For one thing, you will have to make sure that you choose a mutual fund that will be around for the long-term. When you are putting such a large amount of your retirement portfolio into one place, you are essentially putting all of your eggs in one basket. If you choose a mutual fund that goes out of business, you could put your retirement in a bad situation.

Another drawback of investing in life cycle funds is that you will have to pay extra money for management. Mutual funds charge expense ratios that are used to pay for the administrative costs of the fund. This money is used to pay for the salaries of the fund managers as well as the other costs that are associated with running the fund. This can eat into the amount of money that you earn and your retirement dollars.

Another disadvantage of this type of investment is that you will not have much control over where your money goes. If you are the type of individual that likes to have a lot of control over your portfolio, this is definitely not the tool for you. This is more of an investment for individuals who do not want to have to worry about their investments.

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