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Lifestyle and lifecycle funds

- Alan Lavine and Gail Liberman

Are lifestyle funds for you? Or do you need lifecycle funds?

The mutual fund marketing departments must be working over time to come up with stuff to sell.

Both types of funds make it easier for you to invest and get professional management.

Lifestyle funds help you reduce the risk of wide swings in the share price of the fund over time. The swing of a funds price from high to low is known as volatility risk. This type of fund does this by rebalancing a portfolio of stocks and bonds to the same percentage mix of assets periodically. As are result, a conservative investor may own a lifestyle fund that keeps 60 percent in stocks and 40 percent in bonds. Every three to six months the portfolio would be rebalanced.

Lifestyle funds do not directly invest in individual stocks and bonds. These funds invest in the fund groups other stock and bond funds. They are fund of funds investments.

Why rebalance a portfolio? There are a couple of reasons:

You take profits in existing investments and put the money to work in under performing investments. Rebalance also keeps you from investing too much in stocks based on your investment comfort level. For example, someone nearing retirement does not want to over invest in the stock market. As a result, he could invest in a lifestyle fund that always limits the amount he invests in stocks.

"Lifestyle funds are target risk based investments," says Elizabeth Kennedy, spokesperson for the John Hancock Funds, Boston."

John Hancock recently launched 5 lifecycle funds. Other fund groups like Goldman Sachs also offer these types of investments.

What about lifecycle funds?

There funds are a little different. These funds change the amount of stocks and bonds in a fund based on your age. When you are young more money is invested in stocks. As you near retirement less is invested in stocks and more is invested in bonds and cash. As result, your investment becomes less risky at a time when you need income for retirement.

These are also fund of fund investments.

Lifecycle funds are offered by fund groups like T.Rowe Price and Fidelity Investments. The funds are often used in retirement savings accounts.


Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books). Al and Gail's new book is Rags to Retirement, (Alpha Books).

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