A “life cycle fund” is a specific type of mutual fund that is based on the balancing of assets, allocating them according to specific parameters which are based on the fund’s time horizon. The fund will change its proportional numbers of the different types of asset classes within the portfolio automatically, adjusting them from higher risk to lower risk over the course of the investor’s life.
Therefore, as the investor starts to get older and nears retirement age, the fund will be matured into a lower risk allocation that is appropriate for the stage of life of the investor. In some circles, “life cycle funds” may also be known as “age-based funds.”
Those who support the idea of investing in life-cycle funds are often very fond of the simplicity that this type of fund can offer to investors. Essentially, they are able to simply put all of their investing strategies on automatic, and have one fund that can be managed on their behalf.
However, not all investors are fans of life cycle funds. Some are of the opinion that an approach that is not tailored to the individual cannot offer as much to investors. Nevertheless, for investors who are not interested in taking significant time and effort in the management of retirement investments, there is no doubt that a life-cycle fund could be the answer. Other investors who wish to maintain more direct control of their investment management would be poor candidates for life-cycle funds.
Also check out the purpose of a lifecycle fund here.