Lifecycle Funds: Asset Management Made Easy


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Lifecycle Funds: Asset Management Made Easy

  1. 1. Lifecycle Funds: Asset Management Made Easy If you want a convenient, one-stop strategy for retirement investing, lifecycle funds can be a good choice for getting you to where you want to go. Research shows that asset allocation — how you divide your money among different asset classes such as stocks and bonds — is one of the most critical components of managing risk and building a sound retirement portfolio. As a result, you want to ensure your allocation strategy positions you for long-term growth. This involves not only establishing an appropriate asset allocation for your current investment needs, but also devising a strategy for reallocating and rebalancing your portfolio as your allocation mix changes with the ups and downs of the market. (Rebalancing or diversification does not protect against loss or guarantee that an investor’s goals or objectives will be met.) However, many investors are overwhelmed by the numerous investment options available to them. Also, investors often don’t have the time — or the inclination — to review their portfolios regularly. For these types of investors, lifecycle mutual funds offer an effective way to create a well-diversified portfolio for the long term. Introduced in the mid-1990s, lifecycle funds are geared to an investor’s year of retirement, starting out with a higher allocation to relatively riskier assets like stocks when the investor is young, and then reallocating gradually toward relatively lower risk assets as the investor gets closer to his or her retirement date. Lifecycle funds have become popular. For example, in 2006, total market assets in lifecycle funds reached $100 billion, and are expected to hit $325 billion by 2010. The TIAA-CREF Lifecycle Fund Option In 2004, TIAA-CREF began offering TIAA-CREF Lifecycle Funds as an option for retirement plans. TIAA-CREF Lifecycle Funds are a “fund of funds,” which means they invest in a range of other mutual funds, and offer a single, convenient, low-cost alternative for investors 1
  2. 2. who prefer to have their retirement savings and allocations professionally managed. The Lifecycle Funds invest in a selection of equity (stock) and fixed-income TIAA-CREF Institutional Mutual Funds that include the following choices: Large-Cap Value Fund Growth Equity Fund Small-Cap Equity Fund International Fund Bond Fund Inflation-Linked Bond Fund High-Yield Bond Fund (You can read more about the lifecycle funds by visiting our website at and looking in the Fund Research section under Retirement Investments & IRAs.) How Lifecycle Funds Work We currently offer lifecycle funds with retirement dates (i.e., the date you plan to retire) of 2010, 2015, 2020, 2030, 2035, 2040, 2045 and 2050. The funds with a 30-year time horizon begin with an initial allocation of 90% equities and 10% fixed income. As you get closer to retirement, the funds will gradually reduce the equity portion and increase the fixed-income portion to help reduce the risk in the portfolio. At the target retirement date, the overall allocation is split evenly between equities and fixed-income investments. Equity exposure continues to decrease during retirement, until it reaches a final allocation of 40% equity and 60% fixed income at around 10 years following the target retirement date. By providing substantial exposure to equities during early periods of an investor’s retirement investment horizon, TIAA-CREF Lifecycle Funds are designed to offer opportunities for asset growth. Then, the gradual increase in fixed-income investments helps stabilize the investor’s portfolio as his or her savings horizon shortens. At retirement, the funds strike a balance between equities and fixed-income investments in order to meet the investor’s need for current income while continuing to provide portfolio growth opportunities throughout retirement. 2
  3. 3. Note, however, that if you invest in a lifecycle fund, there is no guarantee that the fund (or its underlying funds) will achieve its investment objective. Also, as with all mutual funds, there is a risk that an investor could lose money by investing in a lifecycle fund. Additional Benefits of Lifecycle Funds In addition to simplicity, broad diversification and easy rebalancing/reallocation, a well- structured lifecycle fund can offer these advantages: ► Transparency: A well-designed lifecycle fund will invest in underlying funds that are “transparent” — i.e., they offer direct exposure to the intended asset classes. For example, if a lifecycle fund has 20% of its holdings allocated to a growth stock fund, the underlying fund for this growth stock component should include pure exposure to growth stocks. In other words, what you see is what you get. The TIAA-CREF Lifecycle Funds offer a “pure” style approach. This means that we manage all component funds to limit “style drift,” the tendency of a fund to drift from its stated investment objective. This approach enables our portfolio managers to pursue more predictable and consistent performance results. ► Low Cost: The management fees and expenses investment companies charge can have a significant impact on fund returns, especially over the long term. Generally speaking, lower-cost funds can affect long-term returns when compared with higher cost funds. (However, lower expenses do not guarantee higher returns.) TIAA-CREF has always been committed to maintaining low expenses for our annuity accounts and mutual funds, and the TIAA-CREF Lifecycle Funds are no exception.* The low costs of the underlying mutual funds are reflected in the low total cost of the Lifecycle Funds, whose total expense ratios range from 57 to 65 basis points. (A basis point is one hundredth of a percentage point, or 0.01%.) Note that in addition to the fees and expenses associated with the lifecycle funds, investors are also exposed to the fees and expenses associated with the underlying investment options. Besides the potential advantages lifecycle funds can offer, investing in lifecycle funds exposes you to a range of investment-related risks. Specifically, lifecycle funds are subject to asset allocation risk and the risks associated with the underlying funds, which include market 3
  4. 4. risk, company risk, foreign investment risk and credit risk. To learn more about all the risks associated with lifecycle funds, read the prospectus carefully. Learn More About TIAA-CREF Lifecycle Funds If you think lifecycle funds might be a good match for your investment needs, visit our website at and click on the Prospectuses tab at the bottom of the screen. Then, select the TIAA-CREF Lifecycle Funds — Retirement Class prospectus, which is available in PDF format, to read more about the funds. You can also contact your benefits office to find out about the lifecycle fund option. * Morningstar Direct (February 2007) based on Morningstar expense comparisons by category. Investing in securities involves inherent risks. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so your accumulation, when redeemed, may be worth more or less than the original cost. You should consider the investment objectives, risks, charges and expenses carefully before investing. Please call 877-518-9161, or go to for a current prospectus that contains this and other information. Please read the prospectus carefully before investing. TIAA-CREF Individual & Institutional Services, LLC, and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products. Annuity products are issued by TIAA (Teachers Insurance and Annuity Association), New York, N.Y. © 2008 Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA- CREF), 730 Third Avenue, New York, NY 10017. C40606 4