Lifecycle investment is to allocate a larger portion of long-term investment which its plan based on the total investment of investors during their lifetime. The investment portion of Equity Instruments can be high when investors are young to have a chance to gain better long-term benefits even though the annual benefits may be more unstable or be in deficit. In order to minimize investment fluctuation when investors are getting old, they can reduce their allocation in Equity Instruments and then gradually shift them to Bonds.
For Lifecycle investment during the first time working, investment should focus on “High-risk assets” to increase an opportunity to get better long-term benefits as a longstanding investment can bear a higher risk. At middle age, the focus then shifts to “Risk mitigation” to suit age changing by decreasing investment portion in risky assets, and increasing more volume of investment in safe assets. At retirement age, the most important thing is to “Maintain the principle” by adjusting the investment plan to lower risk for creating a consistent return.
Referring to the investment plan scheme, investors must rebalance investment portfolios occasionally in line with risk levels because acceptable risk levels will change as we age (Young people at high risk, Old people at lower risk). Practically, that portfolio adjustment seems difficult for some investors as they may not know when to rebalance the port and how to adjust it to reach their own investment goals. However, Target Date Fund may serve investment goals for retirement.
Target-Date Fund
is designed to be long-term investments for individuals with particular retirement dates in mind which will be likely the year that investors retire. For example, at the age of 40 in 2021, investors plan to retire at the age of 60, so they’re able to select Target Date Fund whose terms will end in 2041.
Target-Date Fund will assign Fund Manager to allocate investment according to the change of members age by adjusting high-risk investment assets to lower regarding the rest of working years until retirement. For example, a Fund member who has 20 years of working left, the Fund Manager will arrange Aggressive Portfolio investment which means that the member will invest in assets with high risk and high portion for the first 5 years. And then, the investment weight will be adjusted to Balanced Portfolio for the next 5 years. After that, the investment will enter Conservative Portfolio for another 5 years. Finally, over 5 years before reaching retirement age, the investment will turn to Defensive Portfolio or safe port with emphasis on high safe assets for investors.
Why we must choose the Lifecycle Investment plan?
Mistakes tend to occur when planning for a long-term investment such as retirement. For example, young first jobbers may choose a very low-risk investment portfolio such as investing 100% in Market Money or Bond even though gaining consistent return with low fluctuation but losing a chance to get a good return for long term. On the contrary, those who are close to retirement age may choose risky investment portfolios such as 100% Thai stock or foreign stock so they tend to lose a large amount of money (loss) during the market downturn. Consequently, those investors will have little time left for investment to retrieve. The mistake derived from the one-time investment will affect their savings and they may have insufficient money to spend during the retirement period.
Good things about Lifecycle Investment
It helps relieve investors' concerns on rebalancing investment risk in line with goal and time, reduces doubts in investment and uncertainty to choose the right plan. This investment is ideal for novice investors who don’t have time to follow up market situation.
Those who are interested in Lifecycle Investment can invest through Target Date Fund by seeking advice from an investment consultant or Mutual Fund Manager. For investors who are employees at the company with Provident Fund established, you may review if your Provident Fund offers Lifecycle Investment. If it’s available, find out information and compare benefits, and pros and cons before starting an investment.
For government officials who have invested through the Government Pension Fund, that organization has already set up Lifecycle Investment to provide better long-term returns to its members. Please ask for additional detail from Customer Service officials or contacthttps://www.gpf.or.th/
In summary, Target Date Fund has gained more interest from investors who want to save money and invest as preparation for the retirement period. It’s the investment that a professional Fund Manager will help rebalance the investment portion to fit the age range so that investors will have enough savings to spend at retirement age. Most importantly, don’t forget to consider if savings through Provident Fund or Government Pension Fund would cover your living expense over the retirement period. If you realize that you won’t have enough money, you can hurriedly set an investment plan for other assets to ensure that you can live a happy retirement.
Nipaphan Poonsathiensap CFP®, ACC
Freelance Financial Planner, Writer, and Lecturer
FAQs
Target-date or lifecycle funds can be considered low risk, but the risk varies by fund. Any investment in the stock market comes with some risk. There is no guarantee that the funds will provide high returns by their target date.
What is the average return on the lifecycle fund? ›
From January 2006 until November 2012, a representative life-cycle fund 1 for a worker targeting retirement in 2020 had an average annual return of 4.6 percent, compared with 4.2 percent for the S&P 500.
What is lifecycle investment? ›
A diversified mutual fund that automatically shifts towards a more conservative mix of investments as it approaches a particular year in the future, known as its "target date." A lifecycle fund investor picks a fund with the right target date based on his or her particular investment goal.
What is the retirement life cycle? ›
Retirement is a critical stage in the Planning Life Cycle! In fact, the span of time from 5 years before retirement until 5 years after retirement is often referred to as 'the decision decade! ' During this dramatic time, many people undergo changes and flux in every aspect of their life, such as goals and lifestyle.
What investments does Suze Orman recommend? ›
Orman suggested purchasing low-cost index funds and exchange-traded funds (ETFs). She also advised prioritizing dividend-paying stocks. Use 401(k) plans and IRAs. These accounts are tax-advantaged, which means they offer you tax benefits, such as lowering your earned income the year you make your contributions.
Which lifecycle fund has the most risk? ›
The S Fund is considered one of two funds with the greatest risk in the TSP. 5 It has outperformed the C Fund with proportionately greater volatility over time.
What is another name for a lifecycle fund? ›
Life-cycle funds are also known as "age-based funds" or "target-date retirement funds." A young investor saving for retirement would typically choose a life-cycle fund with a target date that is 30 to 40 years away.
What is a target retirement life cycle fund? ›
Target-date funds are set up to coincide with an investor's retirement timing. The funds start off with more aggressive investment choices in their early years. As the target date approaches, the choices get more conservative to preserve gains.
Is 6% return a good investment? ›
General ROI: A positive ROI is generally considered good, with a normal ROI of 5-7% often seen as a reasonable expectation. However, a strong general ROI is something greater than 10%. Return on Stocks: On average, a ROI of 7% after inflation is often considered good, based on the historical returns of the market.
How to choose a lifecycle fund? ›
How to choose a lifecycle fund. Select a fund with a target year and glide path design that you're comfortable with, given your investment objectives. You can learn about a fund's glide path design in the prospectus for the fund or on our website. Also learn about expenses the fund charges.
If you need the money soon then you want to invest in things that won't bounce around a lot. AKA the more conservative funds (like the G and F funds). Summary: If you are far from retirement, invest aggressively. As you approach retirement (and in retirement) we need to be more conservative but not overly conservative.
What is the best fund to invest in TSP? ›
More specifically, the F Fund tends to be a better investment than the G Fund when interest rates are flat or falling, while the G Fund is better when interest rates are rising. Right now, interest rates are rising, and so it is safer to have money in the G Fund.
At what age do retirees slow down? ›
The Slow-Go Years often begin as people approach their mid to late 70s or early 80s. This is the time when most people start to slow down, either because of health reasons or general aging.
What is the 6% retirement rule? ›
A switch to the 6% rule could provide much-needed financial relief. For example, for a new retiree with savings of $500,000, withdrawing 6% instead of 4% would provide an extra $10,000. Unfortunately, the reality is that such a high withdrawal rate significantly increases the chances of your account running dry.
What is 4% rule in retirement? ›
The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.
Is it a good idea to invest in life insurance? ›
Investing in life insurance may make sense as a long-term strategy. The cash value portion of a life insurance policy can take years to grow over time, but if it does, it can offer an additional income stream during your retirement years — as long as it's structured correctly.
What is the most successful investment fund? ›
Best-performing U.S. equity mutual funds
| Ticker | Name | 5-Year Return (%) |
|---|
| FDGRX | Fidelity Growth Company Fund | 23.11 |
| SCIOX | Columbia Seligman Tech & Info Adv | 22.54 |
| FSBDX | Fidelity Series Blue Chip Growth | 22.33 |
| FBGRX | Fidelity Blue Chip Growth | 21.51 |
3 more rowsSep 2, 2024
The G Fund is invested in U.S. Treasury securities specially issued to the TSP. Payment of principal and interest is guaranteed by the U.S. government. Thus, there is no “credit risk.”
