Target-date mutual funds, sometimes called lifecycle funds, are relatively new beasts designed for investors who intend to retire on or around a given year. Each fund holds a mix of stocks and bonds, shifting its allocation from the former toward the latter as its target year approaches. Lifecycle funds aim to help make retirement investing as easy and hands-off as possible.
In general, lifecycle funds are a compelling idea, since many investors feel too busy or too ill-informed to rebalance and reallocate their own holdings. But remember, Fools -- not all lifecycle funds are the same. In some cases, a newer, similar option may be a better choice.
Exchange-traded funds (ETFs) want a piece of the lifecycle pie, too. Like funds, ETFs generally track an index or otherwise represent a basket of individual stocks. But unlike most funds, which process transactions just once a day, you can buy or sell ETFs in any quantity throughout the day, just like stocks. (Learn more about the pros and cons of ETFs in our ETF Center.)
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For instance, the TDAX Independence 2040 ETF
These new ETFs, and the financial companies issuing them, hope to capture a chunk of the lucrative market for retirement investing. Adding to the appeal for financial firms, more and more companies are automatically signing up new employees for retirement accounts, rather than giving them a chance to procrastinate and fail to participate. Lifecycle funds are logical default investments for retirement savers in these funds.
What to do
Is the rise of lifecycle ETFs a good development? Well, yes and no. They'll certainly offer us more investment choices in our retirement accounts. Some also sport attractive expense ratios, making them cheaper than many mutual funds. But don't assume they're all less expensive than corresponding funds; some regular index funds, particularly those from Vanguard, sport extremely low fees.
You can also trade these lifecycle ETFs throughout the day -- but why would you want to? If you're investing for retirement, it's probably better to leave your holdings alone, as long as they're performing well. After all, these funds are designed to spare you the trouble of rejiggering your assets in the first place.
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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Try any of our investing services free for 30 days. The Motley Fool is Fools writing for Fools.