For true “buy-and-forget” investments, Jane Bryant Quinn of
Newsweek recommends lifecycle funds.
Currently more than half of the larger
401(k) plans offer lifecycle funds and by
the first part of 2007, consultant firm
Hewitt Associates anticipates they will
be components of approximately 65%.
In addition to being easy to manage,
they are well-diversified, and according
to a performance analysis by Hewitt,
investors who have lifecycle funds
(comprising even just a part of their
portfolio) earn higher returns than those
with no lifecycle funds.
To select a lifecycle fund, simply pick
one that contains in its name the year
you will be approaching age 65. For
example, if you’re 40, you should pick a
fund named 2030. As you get closer to
retirement age, the content of your
lifecycle fund will automatically adjust
to more conservative, less risky
investments. Your only decision will be
how much to contribute.
Due to the similarity in names, don’t
confuse lifecycle and lifestyle funds.
The composition of lifecycle funds in
terms of stocks, bonds, etc. changes as
you age. Lifestyle funds, although also
well-diversified, maintain about the
same percentage of stocks.
Source: Newsweek, 3-27-06
