Mutual funds on cruise control

Investment pros often tout the benefits of a well-diversified portfolio - one that includes a mix of stocks, bonds, and cash instruments.

But researching and building the proper investment mix can be a time-consuming chore.

Enter mutual-fund one-stop shopping.

With just one call (or Web-site visit), you can order a single mutual fund that takes care of almost all your major investment needs.

Buying into a lifecycle fund or an asset-allocation fund gives investors an investment that packs a multi-edged wallop. Both types of funds include stocks, bonds, and, often, money-market instruments.

Moreover, they can be adjusted for your age. The type of fund you buy at age 35 may be quite different from a similar lifecycle fund suitable for someone age 55.

"What's unique about these types of mutual funds is that with one purchase you can pretty much find a fund to meet many of your financial goals," says Jon Hale, who tracks several lifecycle funds for information-firm Morningstar Inc., Chicago.

"For a person who has other things to do than pore over mutual-fund charts, a lifecycle fund can make a lot of sense," says Walter Updegrave, a mutual-fund expert who has just written a new book, "Investing for the Financially Challenged" ($13.95, Warner).

Using the "long-range planning" represented by asset-allocation and lifecycle funds, investors can "better manage risk and increase their profits," says Charles Kadlec, a managing director of mutual-fund firm J.&W. Seligman, New York.

Studies by Seligman show that investors come out ahead using asset-allocation/lifecycle models, Mr. Kadlec says.

Most investors, he adds, tend to move in and out of various funds over the years, reducing returns.

Besides profitability, lifecycle funds can also be economical, Mr. Updegrave says. To duplicate a mix of individual bond, equity, and money-market accounts could require $6,000 to $12,000 with most fund houses, he says.

But many fund families will let you buy into a lifecycle or an asset-allocation fund for between $500 (at Putnam, for example) and $2,000 (at T. Rowe Price).

Of the two types of one-stop funds, asset-allocation funds are more rigid.

They are based on a set percentage of assets within the portfolio of equities, bonds and, sometimes, money-market instruments. The allocations are designed to take advantage of both trends in the financial world and economy, as well as the risk tolerance of the individual.

For example Scudder's "Pathway Series" of funds contains three fund types: balanced, conservative, and growth. The balanced fund puts about 1 percent in cash, 37 percent in bonds, and 62 percent in stocks.

The growth fund, by comparison, is 1 percent cash, 15 percent bonds, and 84 percent equities. The conservative fund has 5 percent cash, 31 percent stocks, and 64 percent bonds.

"We've got an asset allocation fund that fits just about any type of investor," says a spokeswoman.

On the other hand, lifecycle funds target investors based on where they are in their cycle of work, family rearing, and risk tolerance. These funds are often based on your immediate age, or the year in which you will retire.

Examples include the T. Rowe Price Personal Strategy funds, Schwab Asset Director funds, Vanguard LIFEStrategy funds, Dreyfus Lifetime Portfolio, Fidelity's Freedom funds, and the Wells Fargo Stagecoach LifePath funds.

Take the Wells Fargo LifePath 2040 fund. The portfolio mix actually changes over time. It's initially top-heavy with stocks. But as you approach the end of the fund's cycle - the year 2040 - it tilts toward bonds and cash.

According to Morningstar, there are now some 48 lifecycle funds, 26 "target" retirement funds (lifecycle funds with a target date attached to the fund, such as the Fidelity Freedom 2000 fund), and 295 asset-allocation funds.

Some fund experts believe that the "cookie cutter" approach based on asset-allocation and lifecycle models are simplistic.

Sheldon Jacobs, editor of the No-Load Fund Investor, for example, says that you should not assume that you must be a conservative investor just because you are older, or an aggressive investor, just because you are younger.

Investors need to seek a comfort level by considering such elements as time horizon, risk tolerance, available money, and goals.

Although Jacobs uses model portfolios in his newsletter, he urges readers to be eclectic, and, if necessary, choose and pick funds that match their individual requirements.

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