Reviewed by Oct 05, 2020| Updated on
Zacks lifecycle indexes are a slurry of indices that are empanelled by the Zacks Investment Research, Inc., in order to offer a standard for the allocation of the lifecycle of target-date funds, with another index of every target date.
Zacks designed the lifecycle indices in order to offer much more in-depth information regarding the return and risk characteristics of target-date funds (TDFs). Creating awareness among the investors and shareholders of TDFs is the fundamental purpose behind these indices. They educate individuals about the level of exposure they would get to equities and the risk involved with respect to their principal.
Majority of the target-trade funds have defined their target as ‘through or to’ the possible retirement age of an investor, either by investing ‘through’ or ‘to’ the date defined.
According to Zacks, the horizon of most TDFs target the realistic life span of investors. In simple words, most TDFs considers that the investors would stay invested and would require a blend of capital preservation and growth aspects, and set aside a part of their portfolio in high-risk equities for future needs.
Zacks was of the opinion that this arrangement made investors take undue risks with short-term capital needs, like paying college fee or hospital bills, in which risking a significant portion of the portfolio was not alright.
Making investments in TDFs to a target date will convert the high-risk portfolio to a more conservative and capital preservation oriented allocation as the investor approaches his or her retirement. This model automatically assumes that the pensioners or the ones about to retire have an intention to invest only in the risk-free options.