First of all, we must understand that life cycle funds and hybrid funds must not be confused. Secondly, we should understand that the investment style and type of life cycle funds are not fixed. It will adjust its investment direction according to changes in the market.
1. What is a life cycle fund?
Life cycle fund is praised as "life-oriented" fund by funders. For traditional funds, the types and styles are generally fixed. If an investor chooses a stock fund from the beginning, he will always be under the pressure of higher risks until he actively adjusts (that is, redeems the fund); On the other hand, if investors choose bond funds or money market funds from the beginning, then looking at stock funds in a bull market can only "sigh".
Life cycle funds are not like this. It is called "automatic driving" abroad. Just like driving, drivers can accelerate when they leave the starting point and slow down when they get to their destination, so as to brake safely. This mode of operation has brought a very important result: it provides one-stop service for investors. After purchasing (one-time or regular) life-cycle funds, ordinary individual investors can no longer worry about their own investment, nor spend time and energy on choosing funds, and constantly pay attention to its changes to adjust their investment portfolio. The fund manager of the life cycle fund will automatically adjust the investment style according to the target period.
Second, what does the life cycle fund mean?
Life-cycle fund is a fund that can automatically adjust the asset allocation ratio according to the characteristics of investors' risk expectations and annualized expected returns in each life stage. In the early days, it mainly invested in equity securities, similar to equity funds, with a higher level of annualized expected return of risk expectations; With the passage of time, the proportion of its investment in equity securities is decreasing, the proportion of its investment in fixed expected annualized expected return securities is increasing, and the level of risk expected annualized expected return is gradually decreasing; After the target date, it eventually evolved into a partial debt fund with low-risk expected annualized expected return level, and even a money market fund, which brought stable returns to investors. Lifecycle funds have developed rapidly in overseas markets. Since 1996, the scale has developed from the initial $600 million to 167 billion. By 2005, more than 64% of the 40 1(K) pension plan in the United States was invested in life-cycle funds, an increase of seven times in ten years.
Life cycle fund is a kind of securities investment fund that constantly adjusts its portfolio according to the age of the target holder of the fund. Life cycle funds usually have a time target period. As the target time approaches, the Fund will constantly adjust its investment portfolio, reduce the risk of fund assets, and pursue the maximization of capital appreciation on the premise of adapting to the risk tolerance of target holders at different life stages.
3. What are the types of life cycle funds?
Life cycle funds can be subdivided into "target date funds" and "target risk funds". Their uniqueness lies in providing diversified professional investment portfolios through a single and simple investment method to meet the needs of investors at different stages of their lives and achieve their goals.
1, target risk fund
When the target risk fund is established, the expected annualized expected return levels of different expected risks are set in advance, and the fund names are mostly named as "growth", "steady" and "conservative". "Growth" funds, as the name implies, have a higher proportion of life-cycle funds that invest in high-risk assets; In contrast, "conservative" funds mainly invest in low-risk assets. Investors can choose growth, steady or conservative fund investment according to their risk tolerance.
2. Target date fund
At the beginning, the "target date fund" has a high proportion of investment in high-risk assets; As the target date approaches, the proportion of low-risk assets will gradually increase; Before the target date comes, it will mainly invest in assets with fixed expected annualized expected returns, and will continue to exist for a period of time, and then it will often be merged into money market funds. Most of the names of these funds are directly named after the target date, such as "Target 20 10" and "Target 2025". Therefore, investors can choose appropriate investment targets according to their financial needs. For example, if investors expect their children to go to college in 10 years, they can choose a fund with a target date of around 20 15 to accumulate education funds; If you plan to retire after 30 years, you can choose a fund with a target date of around 2035 and accumulate retirement pension funds.
Four. Advantages of life cycle funds:
1, risk management
Many investors failed to achieve the expected return, not because they took too many risks, but because they did not take acceptable risks. Therefore, the income often can't meet their requirements, and life cycle fund investment can help investors get the matching expected annualized expected income under the condition that life cycle funds bear moderate risks.
2. Diversified asset allocation
According to a survey conducted by American Pioneer Company, participants in pension plans only made one or two investment choices. This means that most participants' portfolios are not diversified, while life cycle funds provide diversified asset categories and effective asset allocation methods.
3. Continuous adjustment of investment portfolio
Many investors will not constantly adjust their portfolios according to the market. With the passage of time, the risks they take have a great deviation from their ability to take risks. According to relevant strategies, the investment managers of life cycle funds regularly re-examine the asset allocation ratio of the portfolio and make corresponding adjustments, thus ensuring the risks and benefits of the portfolio and matching the requirements of investors.