Correspondence: Nigel D. Lewis, Principal Global Investors, 888 Seventh Avenue, Level 11, New York, NY 10019, USA. Tel: +1 212 603 3619; Fax: +1 212 258 2108; E-mail: Lewis.nigel@principal.com

¹has many years of experience in investment management in the City of London, on Wall Street and teaching in academia. His current research is focused on asset allocation in target date funds, passive risk based life cycle asset allocation, semi-passive hedge fund replication, alternative assets in life cycle investing and post-retirement optimal asset allocation.

Received 20 March 2008.

Abstract

Over recent years there has been a proliferation of lifecycle investment funds. This has created a challenge for financial advisers, consultants and plan sponsors: how to compare one fund to another? This article outlines a straightforward approach to assess and compare the risk-return characteristics of lifecycle investment funds. It is the first paper to highlight and explore a simple relationship between the two most popular lifecycle products, target date funds and target risk funds. Investment fund managers, plan sponsors and consultants may not be aware of the direct relationship between these two types of funds. The approach outlined in this paper is easy to implement and also has the potential to assist investors, plan sponsors and policy makers in better understanding the risk-return characteristics of different lifecycle investment products, and thereby help them make more informed product choices.