Mutual Funds: Targeted Allocation

Feb. 26 -- There are two kinds of investors:do-it-yourselfers and the rest of us. And mutual fund companiesknow it.

Some investors happily immerse themselves in market data,charting each success like a proud gardener with a prize-winningtomato. But most of us would rather be doing other things; we'reeither too busy or too bewildered to deal with our own finances.

With those anxieties in mind, some fund companies have launchedtargeted retirement funds — combinations of stocks and bonds thatautomatically rebalance over time. The idea is to provide simple,one-stop shopping for people who want to make all their long-terminvesting decisions in a single step.

Traditionally, experts have advised investors to continuallyadjust their portfolios, making them more conservative as the yearspass. Targeted funds do it for you, starting out more heavilyinvested in stocks, then gradually shifting toward bonds. All youhave to do is pick the fund targeted to the year closest to yourretirement date.

Pick Fund-Picker Carefully

First conceived for 401(k) participants, targeted funds aregaining popularity among people rolling over their retirementaccounts. Now, with new funds from T. Rowe Price Group and VanguardGroup, there are more choices.

Because these are "funds of funds," meaning they invest inother mutual funds within the same family, they're "only going tobe as good as the fund shops that offer them," said Kerry O'Boyle,an analyst with Morningstar Inc. So if you're considering atargeted fund, you'll probably want to choose one from awell-established company with plenty of market experience.

Although most targeted funds are set up in similar ways, theycan differ widely in terms of asset allocations.