One-stop shopping for mutual funds
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Growing in popularity
Asset allocation funds have grown in popularity in recent years and are now widely available for investors in their taxable accounts as well as in many retirement accounts, such as employer-sponsored 401(k)s. They are offered by numerous mutual fund companies.

By the end of 2007, there were 289 lifestyle funds and 315 life-cycle funds available on the market, representing $402.5 billion in consumer assets, according to Financial Research Corp.'s fourth quarter 2007 report on life-cycle funds.

Michael Shore, spokesman for the Investment Company Institute, the professional association for the fund industry, says the ease of use is one of the main drivers behind the growing popularity of allocation funds. "Life-cycle and lifestyle funds are like one-stop shopping."

What are the risks?
As with any investment, consumers must look at a variety of factors before committing retirement assets or taxable money to a fund. Just because the underlying funds are packaged in a manner consistent with risk tolerance or a target retirement date does not guarantee that the performance will automatically be great.

"Try to pick the right fund family," says Cherin. He recommends that consumers research the company, managers or underlying funds included in the allocations.

Goldfarb cautions investors who are interested in target date funds to understand that their true needs in retirement may not match up exactly to what the fund targets. He points to research that shows that spending typically spikes in the first few years of retirement and then reverts back to normal, or lower, after the first few years.

"If the technical target date is the day you retire, does that really mean you'll be all in bonds? Look at beyond the target number to see what you'll really need long term," he says.

Are allocation funds right for everyone?
While Morris says that allocation funds are "appropriate for nine out of 10 people," especially in small or retirement accounts, he counsels that they are not the right investment for everyone.

"For that handful with an inheritance, money sitting somewhere else, or where retirement is more complex ... there might be other alternatives," he says.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice.