Which fund features a pre-determined asset mix adjusted to meet an investment objective by a target date and is commonly used in retirement accounts?

Which fund features a pre-determined asset mix adjusted to meet an investment objective by a target date and is commonly used in retirement accounts?

• A. Life Cycle or Target Date Fund
• B. Index Fund
• C. Mutual Fund
• D. Growth & Income Fund

Answer: (A)

The main concept tested is automatic asset allocation that follows a timeline toward a retirement goal. These funds, known as Life Cycle or Target Date Funds, start with a relatively aggressive mix when the target date is far away and progressively shift toward more conservative investments as that date nears. The target date marks when the investor plans to retire, and the fund’s glide path guides the changes in riskiness over time, with automatic rebalancing to stay aligned with the timeline. This design makes them especially common in retirement accounts such as 401(k)s, where a single investment can evolve with the saver’s horizon without ongoing tinkering. Other fund types don’t inherently adjust their mix based on a target date: index funds simply track a benchmark, mutual funds cover a broad category that can be active or passive, and growth & income funds focus on growth and income but don’t automatically align to a retirement date.

The main concept tested is automatic asset allocation that follows a timeline toward a retirement goal. These funds, known as Life Cycle or Target Date Funds, start with a relatively aggressive mix when the target date is far away and progressively shift toward more conservative investments as that date nears. The target date marks when the investor plans to retire, and the fund’s glide path guides the changes in riskiness over time, with automatic rebalancing to stay aligned with the timeline.

This design makes them especially common in retirement accounts such as 401(k)s, where a single investment can evolve with the saver’s horizon without ongoing tinkering. Other fund types don’t inherently adjust their mix based on a target date: index funds simply track a benchmark, mutual funds cover a broad category that can be active or passive, and growth & income funds focus on growth and income but don’t automatically align to a retirement date.