What are life-cycle funds and how can index funds be used within them?
Asset allocations should be adjusted at least annually through an investor’s lifetime. Annual adjustments are required for several reasons. Adjustments should be made to keep the various types of assets in their proper allocation as the value of each asset type changes each year. As the investor ages, there should be a gradual shift from higher risk stock assets to lower risk bond and cash assets. Many investors do not want to be burdened with adjusting and changing their asset allocation every year. For these types of investors, life-cycle funds may be appropriate. A life-cycle fund is a highly diversified mutual fund designed to remain appropriate for investors in terms of risk throughout a variety of life circumstances. Accordingly, lifecycle funds offer different risk profiles that investors can shift invested funds between in order to manage risk effectively as they move from youth to middle age to retirement. Although lifecycle funds all share the common goal of first growing and
