What Are They?
- The funds track Zacks Lifecycle Indexes, through a combination of equity and bond holdings. As the target date approaches, the funds scale back risk by selling stocks and buying income-producing bonds.
Why & How To Use Them
- XShares/Amerivest introduced Lifecycle ETFs, which are popular as mutual funds, with an eye towards the 401(k) retirement plan market. While saving for retirement is the main reason investors buy Lifecycle funds, the funds are designed for any savings goal with a targeted end date, including major life events such as buying a house or apartment or a child's college tuition.
- The bulk of these funds are geared towards specific target dates in the future, while the 'In-Target' (NYSEARCA:TDX) and Retirement Income (NYSEARCA:TGR) ETFs are designed for investors who have already reached their target date and are primarily interested in income at this stage.
What to Look Out For
- The expense ratio of 65 basis points is well above the typical expense ratio charged by run-of-the-mill index funds. It is also above those charged by several no load target date mutual funds such as Vanguard's, which carry an expense ratio of just 21 basis points annually.
- Keep an eye on what stocks are held in that portion of the fund - do you want that particular exposure to equities?
- For a discussion of these funds' basic objectives, see Index Universe's XShares Launches First Ever Lifecycle ETFs and The Sun's Lifecycle ETFs: Diverse Asset Allocation At Bargain ETF Prices. Also see John Spence's New ETFs Target Retirement Market.
- For a more critical view of Lifecycle ETFs, see Index Universe's The Problem With Target Date ETFs and Lifecycle Funds.
This page is part of The Seeking Alpha ETF Selector which sorts ETFs by type, highlights how to use them and what to look out for, and provides links to articles that discuss key issues for investors.