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lifecycle fund

lifecycle fund definition - business

lifecycle fund

A mutual fund holding a portfolio of other mutual fund shares managed according to a specified target date. A lifecycle fund moves toward a more conservative mix (a larger proportion of bonds and smaller proportion of stocks) as the target date is approached. These funds are designed to appeal to individuals who wish to invest for retirement and have some idea of when the retirement will occur. Mutual fund families generally offer a number of lifecycle funds with target dates in five-year intervals. Also called target fund, target-retirement fund.

Case Study A lifecycle fund holds the shares of other mutual funds and is sometimes described as a fund of funds. Rather than purchase shares of General Motors, Intel, and Google, a lifecycle fund purchases shares of stock and bond mutual funds. The appropriate portfolio composition of fund shares is determined by the fund's target date, which represents the year near when most of its shareholders expect to retire. A lifecycle fund with a distant target date can experience large fluctuations in share value because it holds a portfolio that is heavily weighted with stocks. The portfolio of a lifecycle fund is managed to gradually become more conservative (more heavily weighted with bonds) and less volatile as the target date grows closer. A lifecycle fund can be viewed as a kind of “one-stop" investment vehicle for a person's retirement needs because the composition of the portfolio gradually evolves as the stockholder grows older and nearer retirement. A look at the portfolios of three lifecycle funds operated by TIAA-CREF (see image) illustrates how the portfolio composition varies according to target date.