Lifestyle Fund
A Lifestyle Fund is a type of mutual fund or investment fund designed to automatically adjust its Asset allocation over time according to a predetermined investment strategy, typically based on the investor’s age or retirement timeline. These funds are often categorized by target dates, with the idea that they will become more conservative as the target date approaches, gradually reducing exposure to higher-risk Assets like Stocks and increasing allocations to lower-risk Assets like Bonds.
For example, a 2040 Lifestyle Fund may have a higher percentage of Stocks when launched, but as 2040 approaches, the fund will gradually shift its investments toward Bonds and other fixed-income Assets to protect the Capital of investors nearing retirement.
Case studies of Lifestyle Funds include:
- Vanguard Target Retirement Funds: These funds are designed for investors planning to retire around a specific target year, with automatic adjustments in Asset allocation over time.
- Fidelity Freedom Funds: Similar to Vanguard, these funds offer a diversified portfolio that adjusts its risk profile as the target retirement date nears.