Ramit Sethi explains lifecycle funds: low-cost mutual funds that automatically shift from stocks to bonds as you age and rebalance themselves. He recommends them as a hands-off way to get diversification without overthinking it.
So lifecycle funds, in contrast to what most people think about investing as investing in stocks, which is ridiculous, Lifecycle funds basically let you say I'm 25 years old. Because of that, they will basically assume that people in their 20s need to have this asset allocation. Majority stocks, a little bit of bonds, a little bit of cash. As you get older, you want to change that. As you're tolerance for risk decreases with age, you want to kind of change that. You don't want to have 95% in stocks, maybe 80% and then 60% if you are in your 40s, 50s, 60s. Your asset allocation, in other words, the mix of how your investing looks, your portfolio should be very different than if you're my age. If you're 26, okay? If you're 65, you shouldn't be exposed to that much risk, okay? And that's why I'm glad you guys are here to learn about personal finance. Because you know, if you're, if you're young, you are risk seeking. You want to take risk because you have 20, 30 years to let time mitigate that risk and actually earn a lot more. If you're 60, you have to preserve your capital. You can't afford to lose 50% of your money. Most people don't rebalance. Rebalance means like let's say that you want, let's say large cap stocks to be 15% of your portfolio. Or well, let's say they go up to 30%. You want to figure out how to rebalance it so it's back to 15, and that turns out to be pretty complicated. Most people just don't do it, which is why they end up being 60 and having a totally unbalanced portfolio where they can lose 50% in the market. Okay? You don't want to have that happen. And that's why I recommend lifecycle funds, because they do it for you. Life cycle funds. They're also called target date retirement funds. You can find these at Vanguard, tiaa, cref, tia, T Rowe Price, any investment house, okay? You basically tell them how old you are. They will pick your asset allocation for you, low cost funds, and as you get older, they will automatically rebalance for you. All you need to focus on is funneling as much money as possible into those life cycle funds so that it can grow. You don't have to worry about rebalancing because frankly, I will teach you to be rich. The whole principle is get 85% of the way there and then go on and live your life. I don't expect anybody on this chat to become an expert in personal finance. It's just. It's not what you want to do. You want to use money to be strategic and live your life. You don't want to sit there and learn about expense ratios every single day. All right, so it's not an extra cost for life cycle funds. It's actually cheaper than a lot of other funds. So I would recommend you take a look at them. Life cycle funds, also called target date retirement funds. And you can find these at any of the big brokerage houses. They are a great way of getting started.
