What are Lifecycle Funds?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 15 February 2020
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Lifecycle funds are a type of mutual fund that seeks to create a gradual shift away from investments that carry a higher degree of risk to investments that carry a lower rate of volatility. Sometimes referred to as age-based funds, the idea behind this migration is to make the most of investments that have more risk, but provide higher returns while the investor is younger, but shift to investments that generate a steadier return as the investor moves closer to retirement. Proponents of this approach note that lifecycle funds require little input from investors in order to succeed, while critics of the strategy note that there is little room to adjust the process to meet the needs of individual investors.

The idea behind lifecycle funds is that investors in general are in a better position to deal with the possibility of losses when they are younger. Since the investor has more time to recoup the loss through other investments, those losses can be offset as the years go by. By intentionally moving to investments that have a lower degree of risk as the investor ages, the potential for realizing a steady return that serves as a nest egg for the retirement years is increased. In the best case scenario, the strategy provides the retiree with enough resources to live comfortably for the remainder of his or her life.


Critics note that while the concept of lifecycle funds does have merit, the strategy does not fit the needs or goals of many investors. The gradual move from high-risk investments to low-risk investments may indeed increase the chances of earning steady returns, but it also limits investment possibilities for investors who would earn more returns by continuing to invest in a combination of low and high risk ventures. There is also the realization that even low-risk investments can fail, leaving an investor who focused on safe investments only to also find that the investment portfolio is worth considerably less than originally projected.

Lifecycle funds are often a good option for investors who are somewhat conservative in their investment activity, or who want to increase the chances of generating a steady stream of income after retiring. Various investments can be included in funds of this type, including stocks, bonds, equities, and other types of securities. Determining whether or not lifecycle funds are the best option for the individual often depends on how active the investor wishes to be with managing a portfolio, and how those investments fit into the overall financial goals of that individual investor.



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