How do life cycle or target date funds manage investments over time?

Life cycle or target date funds are designed to adjust the investment mix over time in order to align with the investor's expected retirement date. These funds typically start with a more aggressive investment strategy that includes a higher percentage of stocks when the investor is younger, aiming for higher returns during the accumulation phase. As the investor approaches retirement, the fund gradually shifts towards more conservative investments, such as bonds or cash equivalents. This strategy is intended to reduce risk and protect the accumulated assets as the time for withdrawal approaches.

By becoming more conservative as the investor ages, these funds help mitigate market volatility's impact on the retirement savings, ensuring that funds are preserved for when they are needed, which is crucial for long-term financial planning. This thoughtful approach is what distinguishes life cycle funds from more static investment strategies.