I have had problems logging into my account and the holiday season has been the cause of my not updating recently. In my return, I’d like to start a new segment titled: Mastering Mutual Funds. Here I will take a mutual fund type, and explain it as easily as I can.
The mutual fund on topic today is a lifecycle mutual fund, or an age-based mutual fund. These funds are designed to grow your money for retirement based on when you want to retire and your current age. A lifecycle fund may start investing aggressively in a person’s 20s and when they expect to retire in 40 or so years. The fund may put 80% of the money into stocks and 20% into bonds. As the person ages the fund will switch from being aggressive to more conservative, 20% in stocks and 80% in bonds, as retirement approaches. These are attractive mutual funds since it adjusts automatically based on the investors age. A lifecycle fund is great for someone who doesn’t want to build their portfolio themselves, since this fund really does all the work for the investor.
A downside to this mutual fund could be that all investors are different. Two people might be the same age, but might want their investments handled differently. Another downside is that these funds aren’t much invested in international stocks. One I recently viewed on the Vanguard website was only 10% in international stocks.
In all, a lifecycle mutual fund is great for those who aren’t willing to adjust their portfolio over time. They are an easy alternative to doing all the work on your own. Vanguard.com might be a good website for those interested in these type of funds.