A Closer Look at Lifecycle ETFs

A fast-growing mutual-fund investment strategy is seeping into the exchange traded fund (ETF) community. Earlier this month, XShares and Amerivest Investment Management collaborated to launch the first lifecycle ETFs. Lifecycle funds are designed to be a complete, diversified portfolio within a single fund and have become increasingly popular in retirement plans. Typically, they hold stocks and bonds, and as they mature, or their target-date approaches, they shift into a more conservative asset mix, reports Eleanor Laise for The Wall Street Journal.

Unlike mutual funds, ETFs trade like stocks and offer several advantages that might be important to target-date lifecycle fund investors. Some lifecycle mutual funds charge annual expenses well over 2% of assets, whereas the new TDAX Independence ETFs charge 0.65%. Plus, the lifecycle ETFs have a unique structure that tends to make them more tax efficient than their rivals.

However, lifecycle ETF investors need to consider the asset allocation and how it changes over time. ETFs require brokerage commissions each time a trade takes place, which could be add up for retirement savers who put away a little each month.