Lifecycle Funds: Does One Size Fit All?

Lifecycle funds (or target-date funds), are gaining popularity thesedays and become an ideal vehicle for retirement savings for people whodon’t have the time or knowledge to do their own research in selectingfunds to build a well diversified portfolio. With lifecycle funds, thebiggest advantage is automatic asset allocation. By investing in alifecycle fund, which is a basket of funds that cover every investmentstyle, you leave the job of finding the right asset allocation to theprofessionals, the fund manager(s), who will adjust the mix of thefund’s components based on the time span to the target date. Lifecyclefunds, particularly age-based lifecycle funds, usually have a largeportion (80, 90, or even 100% of the assets) invested in equities tobegin with and gradually shift the allocation to a more conservativestyle with more fixed income investments as the target date gets closerto preserve the assets. While investors get convenience by riding on alifecycle fund, what they lose is flexibility as investors don’t havethe control of what to invest and how to invest. You can’t choose whichfunds to invest in, neither can you change the percentages of eachelement fund.

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