Considered the “fund of funds,” a lifestyle fund is a portfolio of funds with an asset mix determined according to the level of risk and returns that is appropriate for an investor's current life situation. Designed to be the main investment in a person's portfolio, note that lifestyle funds can be conservative, moderate, or aggressive. Generally, aggressive lifestyle funds would be targeted for investors in their late 20s while conservative lifestyle funds would be targeted for investors in their late 50s. Because of their combination of funds, the level of diversification for the lifestyle fund increases, which can help reduce the investment risks often associated with individual stock and bond funds. Diversification does not ensure a profit or protect against loss. All lifestyle funds have a bond fund component as an added measure against volatility and generally tend to perform better than stock funds in down or bear markets.

A self-balancing portfolio. Investment managers consistently rebalance lifestyle funds to maintain a specific level of risk. In a traditional portfolio, your assets would continue to rise or fall depending on the investment market results. For example, in an up market, the stock portion of a portfolio would most likely grow faster than the bond investments in that same portfolio. This also means your portfolio can slowly become more risky. With a lifestyle fund, however, you don’t have to worry about reallocating assets to realign your portfolio to match your financial objective and desired level of risk.

Funds are available to suit the goals of most investors, as represented by these main classifications.

Conservative investors have low risk tolerance or a short time horizon. These conservative investors generally seek stability and liquidity from their invested assets. More specifically, they generally wish to preserve capital while providing income. Fluctuations in the portfolio values are generally minor on an annual basis.

Moderately conservative investors have a slightly higher risk tolerance or a longer time horizon than conservative investors. These investors generally seek modest capital appreciation and income. While portfolios in this range generally preserve capital, fluctuation in values may occur from year to year.

Moderate investors have more risk tolerance or longer time horizon. These investors generally seek relatively stable growth from invested assets offset by a low level of income. Portfolios in this range generally seek steady growth and less volatility than the broader stock markets.

Moderately aggressive investors have a relatively high tolerance for investment risk and a long time horizon. These investors seek above-average growth and have little need for current income. Portfolios in this range generally seek capital appreciation and fluctuate moderately on an annual basis.

Aggressive investors have both high-risk tolerance and a long time horizon. These investors generally seek high growth and no current income. Portfolios in this range generally seek capital appreciation and may fluctuate substantially on an annual basis. This category is unsuitable for investors who do not have an extended time horizon.

Changing allocations for the changes in your life. If you want to simplify asset allocation and investment risk management, consider a lifestyle fund. Remember that asset classes are not managed funds, have no identifiable objectives and cannot be purchased. Past performance of an asset class does not guarantee the results of any specific investment.