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Wedding season is in the air. Countless gifts of towels, crystal vases, and slow-cookers will soon fill the homes of happy couples all across the country. But how many sets of cookware will two people need? Why not set a new trend this year? Give your favorite marrying couple a gift that will outlast their five-year anniversary: a mutual fund.
I take thee, mutual fund ...
As your loved ones vow to stay together till death do they part, take a cue from the ceremony, and choose a mutual fund they can hold for the long haul. In this case, lifecycle funds can be an investor's true soulmate.
Lifecycle funds hold a mix of both stocks and bonds. Their level of risk usually depends on the investor's age and number of years to retirement. These funds are designed to be held throughout retirement, growing progressively more conservative as the fund (and the investor) ages. A typical lifecycle fund will start out with a large equity allocation, then gradually move into more fixed-income instruments over the years. As a result, your lifecycle fund can grow old alongside the happy couple.
Happily ever after
As lifecycle options grow more popular, you'll have no shortage of fund companies to choose from. Be sure to pick a fund family with at least several years' experience in lifecycle investing. I've particularly noticed American Century, which offers a basic but effective line of conservative
Many lifecycle funds employ a fund-of-funds approach to investing -- they simply invest in other mutual funds their firm offers. The Fidelity Freedom series of lifecycle funds are a prime example of this approach. However, the American Century Strategic Allocation series utilizes a direct method, investing instead in individual equity and bond securities. This approach avoids potential holdings overlap, not to mention the diluted returns that can sometimes result from a fund-of-funds method.
The American Century Strategic Allocation funds have been around since 1996, and they're run by a team of portfolio managers. The Conservative fund usually ranges from 35%-50% in equities, while the Moderate fund has previously held between 50%-70% of assets in equity securities. The Aggressive fund typically holds between 70%-85% of fund assets in equities. Right now, the funds favor positions in blue-chip companies ExxonMobil
Each of these funds has landed in the top half of its peer universe in every calendar year except one during the past decade. The chart below shows three funds' returns for the most recent 10-year period ended May 31, 2007.
|
Strategic Allocation Fund |
Annualized Return |
What a $10,000 Portfolio |
|---|---|---|
|
Conservative (TWSCX) |
7.1% |
$19,847 |
|
Moderate (TWSMX) |
8.6% |
$22,773 |
|
Aggressive (TWSAX) |
9.4% |
$24,525 |
Choose whichever fund is most appropriate, based on the marrying couple's age. If they're in their 20s or 30s, the Aggressive fund is likely the best option for them. The Moderate fund might be better for fortysomething couples. And if the couple is in their 50s or nearing retirement, the Conservative fund is your best choice. Of course, there are many other lifecycle options available, so if you have a favorite fund family, one of its funds may also make a great wedding gift.
To have and to hold
When shopping for wedding presents this summer, remember to look beyond the typical registry. Consider a lifecycle fund for that special couple, or even for yourself -- it might be a better gift than you could imagine. At any rate, the happy couple will probably get more use out of these funds than they will out of that Crock-Pot.
Further marital Foolishness:
Want to give your favorite couple the gift of solid mutual fund advice ? Check out the Fool's Champion Funds newsletter with a free 30-day trial.
Fool contributor Amanda Kish lives in Rochester, N.Y., and does not own shares of any of the companies or funds mentioned herein. Bank of America is an Income Investor selection. The Fool's disclosure policy thinks it's a nice day for a white wedding.
