Lifestyle Fund

A lifestyle fund is an investment fund that manages a diversified portfolio across assets with varying risk levels generally for the purpose of long-term investing. Lifestyle funds are often utilized by investors seeking a savings vehicle for a specified utilization date.

Lifestyle funds are often used by investors seeking products to support retirement savings. However, they can be used by investors for any number of events with a specific utilization date. Lifestyle funds can be compared to target date funds since both have the purpose of serving as a vehicle for investing funds toward a specific goal. Lifestyle funds differ in that they typically do not have a shifting allocation that follows a glide path over the life of the investment. Rather they focus on providing either conservative, moderate or aggressive risk allocations for investors beginning to invest at all different stages of their lives.

Lifestyle funds are an iteration of standard balanced funds. They use a mix of assets and an asset allocation strategy in their investing approach, but their goals are more focused on providing investors a vehicle for long-term investing. Lifestyle funds will follow the traditional concept of modern portfolio theory, using an optimal mix of equity and debt based on the fund’s risk tolerance. However, different from target date funds, most lifestyle funds do not shift their allocations along a designated glide path or focus on a specified target date for utilization.

Lifestyle fund managers manage their portfolios similarly to balanced funds. They will differ slightly from balanced funds, though, since their intention is to provide investors with a vehicle for investing toward a specified goal and withdrawal date. This makes them slightly more conservative overall than standard balanced funds.

Lifestyle funds are typically designed to target an investor's investment style and stage of life. They can be marketed across a range of styles with differentiation for an investor’s risk tolerance. Styles can include conservative, moderate and aggressive. They may also expand to income or growth as well as other styles such as value, all with the idea that they are intended for a specific risk tolerance. Risk tolerances are typically delineated by age, with aggressive funds suggested for younger investors and conservative funds suggested for investors approaching retirement.

Aggressive funds will seek more aggressive returns through higher allocations to equity investments, also managing for capital preservation through fixed income allocations. In the more aggressive fund options, investments can be diversified broadly across all market segments and global regions to achieve maximum returns from all market opportunities. In conservative funds, the assets will be heavily weighted toward lower risk investments with greater allocations to fixed income overall.

Lifestyle funds are often provided in a series, similar to target date funds. Two managers with leading market offerings in the lifestyle funds category include Vanguard and PIMCO. Vanguard offers LifeStrategy funds, with a focus on using a specific fund as a core target date holding. These funds do not follow a glide path but rather focus on an investor’s investing style, using the style focus as a means for managing a nest egg over time. PIMCO offers its REALPATH Income Fund, which corresponds with its REALPATH target date funds. The REALPATH Income Fund differs from its target date funds by not utilizing a glide path. This fund seeks to provide investors with a long-term income producing vehicle.