No. These two types of mutual funds have some similar characteristics but also differ in a very important way: the composition of a target-date mutual fund automatically adjusts over time to become more conservative. Below is a brief description of each type of fund. Life-cycle funds typically include cash, stocks, and bonds and may include both U.S. and foreign securities. The percentage of funds in each asset class is determined by the fund manager who attempts to earn the highest return possible by switching portfolio weightings in each type of asset according to market conditions. Life-cycle funds generally include three or four "portfolios" with varying percentages of funds in each asset class. These portfolios are designed to fit investors at various ages or risk tolerance levels. An example is the Vanguard Group’s LifeStrategy® Funds. Investors have a choice of four asset mixes: income (lowest percentage of stock in the fund portfolio), conservative growth, moderate growth, and growth (highest percentage of stock in the fund portfolio). Target-date (target retirement) funds, like life-cycle funds, contain a mixture of stocks, bonds, and cash. However, they differ from life-cycle funds because they usually have a future date in their title (such as 2030 or 2040), and they gradually become more conservative over time. As investors get older, the fund manager puts a lower percentage of stock in the fund portfolio without any action required on the part of investors. Target-date mutual funds are increasingly being used as the "default option" when workers are automatically enrolled in employer 401(k) plans. An example is Fidelity Freedom Funds® (e.g., Fidelity Freedom 2040 Fund). We would like your feedback on this Personal Finance Frequently Asked Question.

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