Dollar Cost Averaging

• Automatic investing is one of the best ways to build long-term wealth. Automatic investing, also known as dollar cost averaging, forces you to pay yourself first, and to live on less than you make. With dollar cost averaging, you invest a set amount of money every month, taking that money right off the top before you spend any other money. By investing the same amount of money each month, you automatically accumulate more shares of your favorite mutual fund when the stock market falters and fewer when it soars. This allows those cheaply purchased shares to grow even more when the stock market does recover.
  
  

Target Date Funds

• Life cycle funds are often called target date retirement funds, since investors choose the fund closest to the date they plan to retire. For instance, if you plan to retire in the year 2019, you could choose a life cycle fund with a retirement date target of 2020. As you get closer to retirement, the fund automatically reallocates its assets, putting less in stocks and more in bonds and fixed income investments.
  
  

Asset Allocation

• Proper asset allocation is an important consideration when saving for retirement and other long-term goals. Life cycle funds work by automating the process of asset allocation, thus relieving the individual investor of that burden. For instance, young workers with decades to go until they retire might be comfortable with most of their portfolio in stocks. But by the time those investors are ready to retire, it is a good idea to scale back those stock market investments and replace them with safer alternatives.
  
  

Control Costs

• High costs can be a problem with life cycle funds, so it is important to keep those costs under control as much as possible. If you have a choice of target date retirement funds in your 401k or IRA, do some research into their performance and expenses. If the expenses are too high, you might want to consider creating your own life cycle fund by choosing low cost index stock funds and bond funds and adjusting the percentages on your own as you get closer to retirement.