What are the different types of life-cycle funds?

There are three main types of life-cycle funds: target-date funds, target-risk funds, and managed payout funds. Target-date funds are designed to reach a specific level of risk by a predetermined retirement date, with the asset allocation becoming more conservative as the target date approaches.

When should you choose a life-cycle fund?

A young investor saving for retirement would typically choose a life-cycle fund with a target date that is 30 to 40 years away. However, an investor nearing retirement age might be planning a working retirement with some income from a small business. Such an investor could select a life-cycle fund with a target date that is 15 years in the future.

Are target-date and lifecycle funds more conservative?

In practice, target-date and lifecycle funds gradually get more conservative as their target date approaches. If, for example, you invest in a lifecycle fund with a target retirement date of 2050, the fund initially will be aggressive.