What Is a Life-Cycle Fund?

Life-Cycle Fund Explained in Less Than 5 Minutes

Life-cycle funds are a type of mutual fund in which the asset allocation becomes more conservative over time as it gets closer to a future date. A life-cycle fund may also be referred to as a target-date fund.
A couple plans for retirement by discussing life-cycle funds with an advisor.

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Life-cycle funds are a type of mutual fund in which the asset allocation becomes more conservative over time as it gets closer to a future date. A life-cycle fund may also be referred to as a target-date fund.

Employers may offer these life-cycle funds as an investment option in their 401(k), but it's important to understand how they work before buying in. Learn if life-cycle funds could make sense as a way to simplify your portfolio.

Definition and Example of Life-Cycle Fund

A life-cycle fund is a diversified mutual fund that shifts its asset allocation to become more conservative over time as it approaches a target date, according to its glide path. Investors can choose which life-cycle fund to invest in based on their investment goals and timeline. A fund manager determines which investments the fund will include and rebalances the fund as needed.

  • Alternate names: Target-date funds, age-based funds

Life-cycle funds are often identifiable because they have a year in the fund name. The year represents the target date. For example, a life-cycle fund with "2050" in its name assumes that the person investing it plans to retire around 2050. The fund’s holdings will subtly shift toward more conservative investments throughout the years to match the goals of someone who aims to retire around 2050.


Not all life-cycle funds share objectives, even if they share target dates. Life-cycle funds may follow an active or passive management strategy.

How a Life-Cycle Fund Works

A life-cycle fund works by adjusting its asset allocation over time, based on its glide path. This is simply the investment strategy the fund follows as determined by its target year. These funds generally are designed to be used for long-term investing. They can hold a mix of stocks, bonds, and other securities. This allows the fund to produce returns for investors while managing risk.

As the fund gets closer to its target date, the allocation shifts to dial down risk. This accounts for the reduced risk tolerance of an investor getting closer to retirement. Life-cycle funds can be offered through workplace retirement plans such as a 401(k), or taxable brokerage accounts. Choosing the right fund typically hinges on your anticipated retirement date.

Say you're 25 years old and enrolling in your employer's 401(k). You have the option to invest in the Vanguard Target Retirement 2060 Fund (VTTSX), which is designed for people who plan to retire between 2058 and 2062. This fund is composed of approximately 90% stocks, with the remaining 10% split between bonds and short-term reserves.

Over time, this fund's allocation will decrease your exposure to stocks and increase your exposure to bonds. Once the fund's target date arrives, the allocation will continue to adjust for approximately seven years afterward until it matches the allocation of the Vanguard Target Retirement Income Fund (VTINX). The retirement income fund's allocation is approximately 30% stocks, and 70% bonds and short-term reserves.

This assumes that once you retire, you'll be looking for income from your investments instead of growth. Compared to stocks, bonds carry less risk and trade with more stability.


Using a retirement calculator can help you estimate what your target retirement year might realistically be based on your investment goals.

Are Life-Cycle Funds Worth It?

Investors may find the simplicity of life-cycle funds appealing. An investor just has to determine which year they plan to retire, then use that as a guide for choosing a fund. The fund manager handles rebalancing, so there's nothing you need to do other than continue investing in the fund. This could be perfect if you prefer a passive investing approach.

However, it's important to consider what you might pay for that convenience in terms of management fees and what kind of returns you stand to realize. Cost-wise, some life-cycle funds can be very affordable. The VTTSX fund mentioned earlier, for example, has an expense ratio of just 0.08%. That's well below the 0.59% average expense ratio for hybrid funds that include both stocks and bonds.

How well do life-cycle funds perform? It's difficult to gauge historically because many life-cycle funds have yet to reach their target dates. At least one study suggests that life-cycle investors may experience a hypothetical cumulative return loss of 21% after holding the fund for 50 years due to underperformance and high fees.


A mutual fund's past performance does not guarantee future results.

One evident flaw with life-cycle funds is that they're designed to be one-size-fits-all when every investor is different. If you invest in a life-cycle fund that underperforms, you may miss the mark on your retirement goals. For that reason, you must consider the fund's asset mix and glide path before investing to determine whether it's a good fit.

Key Takeaways

  • Life-cycle funds are diversified mutual funds that shift their asset allocation over time to become more conservative.
  • A life-cycle fund, also referred to as a “target-date fund,” is a common offering in 401(k) plans.
  • Life-cycle funds can take some of the guesswork out of choosing an appropriate asset allocation, but they could underperform.
  • Investors must consider the performance, risk profile, asset allocation and management fees when choosing a life-cycle fund.
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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Office of Investor Education and Advocacy. “Target Date Retirement Funds.”

  2. Vanguard. “Vanguard Target Retirement 2060 Fund (VTTSX): Portfolio & Management.”

  3. Vanguard. “Vanguard Target Retirement 2060 Fund (VTTSX): Overview.”

  4. Vanguard. “Vanguard Target Retirement Income Fund (VTINX): Portfolio & Management.”

  5. Vanguard. “Vanguard Target Retirement 2060 Fund (VTTSX): Fees & Minimums.”

  6. Investment Company Institute. “Trends in the Expenses and Fees of Funds, 2020.” Page 1.

  7. SSRN. “The Unintended Consequences of Investing for the Long Run: Evidence From the Target Date Funds.”

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