What are life-cycle funds?
Life-cycle funds are also known as target date funds. They are balanced funds that combine shares with bonds in such a way to reflect the different phases of the investor's life-cycle. The target date should preferably correspond to the point in time when you intend to free up your capital to achieve your goals.
At the beginning, life-cycle funds focus on the potential returns offered by shares in the long term. As time goes by and the target date gets closer, the funds will gradually invest more defensively by reducing holdings of shares in favour of fixed-income investments. This ensures that the reserve build up in the fund is better protected and you are shielded from any unexpected setbacks.
Why choose life-cycle funds?
Life-cycle funds are particularly suitable for long-term investors who don't have the time or knowledge to pursue an investment approach in a disciplined manner.
Sharp fluctuations are the last thing you want when you are thinking about freeing up your capital to realise your plans. Life cycle funds actively respond to this situation.
Actively managed life-cycle funds have the flexibility to depart, in the interim, from the pre-set target allocation between shares and bonds, which allows them to actively respond to potential opportunities in the market.
Suitable for periodic investment
With life-cycle funds, you can also build up capital by means of regular deposits. By investing a fixed amount every month, you can build up a tidy sum of capital over time.
You benefit to the full from price fluctuations that are inherent in the financial markets, because during a price dip, units are bought at more favourable prices and that boosts the return in the longer term.