Betting on a Life Cycle strategy

AS WE get older and inch closer to our retirement age, we intuitively understand that we are supposed to take less risk in our investments, shifting the focus from capital gains to income generation with lower volatility.

This sensible view has launched the idea of "target retirement date" funds, also called "life cycle" investments. While the details of these strategies differ, they have a common major theme - in that exposure to growth assets (primarily equity as a proxy for risk) is gradually reduced as the investor ages, while exposure to stable assets (primarily bonds) is increased.

Singapore has appointed a CPF Advisory Panel which is exploring ways to improve the CPF (Central Provident Fund) scheme by implementing a Lifetime Retirement Investment Scheme (LRIS). Part of this new scheme will be the likely introduction of Life Cycle funds as an option. While such implementation is still in the future, it is worth examining the Life Cycle strategy in more detail so that investors fully understand what they may be buying.