Life cycle funds are a recent innovation designed to relieve employees of the explicit choice of retirement account allocations.
I will also consider how risk in such plans might be reduced by life cycle funds and other means and how much employees might gain from such investment strategies.
For plan sponsors, the ability to offer a retirement plan management alternative that supplements the ever-popular set-it-and-forget-it Target Date and Life Cycle funds
(averaging 6-8% returns) is enormously valuable, especially when you consider the amount of time and productivity wasted by employees worrying about their future.
If all this seems confusing (and it should), ask your bank or broker about "target date" or life cycle funds
Founded in 1970, we offer equity and fixed income portfolios as well as a range of blended asset portfolios, such as life cycle funds
, that use a mix of stocks and bonds.
The TSP now offers professionally managed life cycle funds
that diversify investments throughout the five existing TSP funds through various asset allocations.
For instance, they may not understand that life cycle funds are diversified.
Though increasing in popularity, life cycle funds are not quite the panacea the investment industry has made them out to be, perhaps even less so in the 401(k) environment.
Few managers today offer true life cycle funds to individuals participating in 401(k) programs.
Few life cycle funds in the market also focus on thorough investment education.
Some of the risks of using life cycle funds
could include liability from market exposure and risk of loss due to market volatility.
Because of their simplicity, low-costs, and broad diversification, life cycle funds
appeal to a broad range of investors seeking a single choice option, including younger individuals just starting their retirement programs, as well as those looking for an ideal vehicle for their IRA or company retirement plan rollover.