There are two trends in the types of funds the mutual fund industry has designed for retirement: “lifestyle” and “lifecycle”.

Lifestyle funds have long term, fixed, strategic asset allocations. They are also called asset allocation funds and generally labeled based on the underlying risk of the portfolio: “aggressive, moderate, and conservative”.

Lifecycle funds, also known as “target maturity” or “target date” funds have an asset allocation that evolves over time. At younger ages when the capacity for risk is usually greatest, the asset allocation is invested almost entirely in equity asset classes. As the investor ages and risk capacity declines, the percentage of the fund invested in equities typically decreases.

Risk Tolerance versus Risk Capacity One of the differences between the two types of funds is the “risk profile” of the investor. Let’s call it risk tolerance versus risk capacity.

Risk capacity is objective based on withdrawal needs, liquidity and time horizon. These aspects of risk capacity create a framework determining the ability to hit a target goal. A target maturity fund is aiming at a specific goal or specific point in time. The portfolio is designed to provide for a certain amount of income replacement. The actual amount of income received depends on the performance of the underlying funds.

Van Kampen has both types of funds for Financial Advisors to help their clients achieve a comfortable retirement.

Mutual funds are subject to market risk, which is the possibility that the market values of securities owned by a fund will decline and that the value of fund shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in mutual funds.

This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy. The forecasts and opinions in this piece are not necessarily those of Invesco, and may not actually come to pass. Information in this report does not pertain to any Invesco product and is not a solicitation for any product.