Investments With Artificial Intelligence

December 12, 2007 By Debbie Dragon

Seems everything these days has some form of “artificial intelligence”.  Childrens toys, computers, cars… but investments?

Life cycle funds are mutual funds that offer investors a quick way to create a diversified portfolio.  Life cycle funds already contain a mix of stocks, bonds, and various assets- so when you contribute to a life cycle fund you have an instantly diversified portfolio containing small cap stocks, international stocks, bonds and others with your single investment.

The reason these funds seem to have “intelligence” is because they change their investing strategy without you having to make the changes, based on where you are financially and how close you are to your retirement. 

For example, if you want to retire in 10 years, you would invest in a life cycle fund with a ten year term.  At first, the fund would invest aggressively, but the closer you get to that ten year target mark, the more conservative the investment would become.  You don’t have to do anything to change it so it’s the ultimate “set it and forget it” investment- much like a 401K.  The benefit though, is that the life cyle funds are “smart enough” to change investment strategy for you.

Funds that change based on age aren’t entirely new- the educational 529 plans work on a similar premise.  The life cycle funds may be the perfect solution for people who aren’t into following the daily changes in the market but some people say a cookie cutter approach to investing and planning for retirement isn’t the best solution.  Life cycle funds, and similar funds that adjust according to your planned retirement age don’t take into consideration the different financial needs that people approaching retirement may have.

However- if you’re like the majority of investors who want to put aside some money towards retirement but can’t afford to pay for financial advice, using the “intelligence” of the Life Cycle Funds may be a perfect solution for your investment needs.

As with any investments, you should take the time to track their progress on a regular basis.  Once a month, make a date with yourself to go over your accounts.  How much money did you contribute?  Is the fund showing the right amount of money?  How much money is currently in your accounts, and should you increase your investments to reach your goal or can you put in less if your funds are doing better than you thought?

Posted in 1

• A Story of How Loaded Mutual Funds Work A few weeks ago I met with a financial "advisor" from an insurance company as a favor to my fiance's friend. The advisor works on a "referral basis", which means he gets commissions from the...
• Mutual Funds Stuck In Between a Rock & a Hard Place Think back to our two courses on mutual funds, Weakon 205 and 305.  For a brief review, mutual funds are companies that pull investments from many people together.  The advantage for the investor is access...
• Weakon 115: Financial Industry One of the primary philosophies of Weakonomics is the status of the financial industry. No I'm not talking about Bear Stearns, Countrywide, and the credit crunch. They play a part and we'll get to them...
• Why you should keep your money in your 401k plan Photo by: nbreazeale We had some friends over for dinner the other night. We try to get together with them about once a month. Pretty much every time they come over, Mike either asks me...
• Kiyosaki Writes: Lottery Better than Mutual Funds Robert Kiyosaki has a bi-weekly blog at Yahoo! Finance. His latest article, Playing the Mutual Fund Lottery, was posted yesterday. Kiyosaki has made his fame and fortune from his educational book series and his mostly...