Life-Cycle Mutual Funds

Target retirement funds, also known as life-cycle or target maturity funds,
take less risk with stocks and add conservative bonds as an investor nears
retirement. In retirement, these funds give greater prominence to income-
producing bonds. If a bad bear market hit the year before you retired (for
example in 2000), if you were in a target retirement fund, your asset
allocation to equities would have been greatly reduced. This provides a
cushion for your nest-egg. For those within a decade or so of retirement,
the stock-bond percentage generally would be closer to 60-40. The stock
portion gradually declines to about 20% over a 30-year span after retirement.

Workers who aren't participating in employer-sponsored retirement plans
say they'd be more likely to contribute to an investment vehicle that
automatically becomes more conservative as they approach retirement.
Accordingly, U.S. fund companies such as Fidelity Investments, T. Rowe
Price Group, the Vanguard Group and Charles Schwab & Co., among
others, have launched versions of the life-cycle strategy. Nowadays the
earliest retirement funds mature in 2010, with others offered in 5- or 10-
year increments up to 2045. Various 529 programs (for college funds) also
offer such schemes in order to ensure availability of money at the time of
college years.

Target retirement funds are so-called fund of funds, which invest in
several of the sponsoring firm's stock and bond portfolios. The funds
maximize capital appreciation for investors with long horizons until
retirement, while income is emphasized for older investors. While most of
these funds are not much more than a year old and performance records
are short, they've been generally well-received.