Dear Dagen: Asset-Allocation Funds

I have one fund inside my Roth IRA, which is the Janus fund. As you are aware, the Janus family has taken a beating. I have done a lot of research on what might be good funds for my Roth. I probably need more diversification, so I have looked at Fidelity's 2020 Freedom fund and at Vanguard LifeStrategy Aggressive. I'd like to retire around 2023.

Are these asset-allocation funds good, or would I be best served by investing in three or four good funds? Right now, I feel like the more I learn, the more confused I get. Right now I'm just spinning my wheels, trying to figure out which way to go. -- Rick Arnold

Reading Kierkegaard is hard. Taking care of a two-year-old is hard.

But investing doesn't have to be.

To build a well-rounded portfolio, you don't have to spend hour after frustrating hour researching hundreds of stocks and funds. You just have to find one good asset-allocation fund.

These funds, called life-cycle or lifestyle funds, are designed to provide instant but maximum diversification. With a single investment, you get exposure to both stocks and bonds. The fund's allocation is usually tailored to meet a general risk tolerance or future retirement date. And the asset mix in some of these funds actually will change with you as you age -- getting more conservative the closer you get to retirement.

Many of these life-cycle funds invest in other mutual funds. (Balanced funds, on the other hand, typically buy stocks and bonds directly.) The Fidelity (FFFDX Quote)Freedom 2020 fund, for example, invests in 17 different Fidelity stock and bond funds, from the (FGRIX Quote)Growth & Income fund to Fidelity's (FSEAX Quote)Southeast Asia fund. And the fund's asset allocation is geared for investors who are planning to retire around 2020. Buying that many funds on your own and maintaining the right mix in your portfolio would be a constant headache. Instead, you can buy one fund and you're done.

Fidelity offers six of these Freedom funds, which invest according to the retirement dates indicated in their names. (The (FFFAX Quote)Freedom Income fund, the only one without a date in its name, is designed to provide income for people who are retired.) The closer the date, the more conservative the mix of stock, bond and money market funds will be. Naturally, the Freedom 2040 fund is more aggressive, with 75% of its assets in U.S. stocks and 15% overseas, than the Freedom 2020 fund, which only has 61% in U.S. stocks and 10% overseas.

Vanguard has four so-called LifeStrategy portfolios: (VASGX Quote)Growth, (VSMGX Quote)Moderate Growth, (VSCGX Quote)Conservative Growth and (VASIX Quote)Income. The LifeStrategy Growth fund is the most aggressive, with about 80% of its assets in stocks. The Income fund is the most conservative, with 80% in bonds and cash. All four of these funds simply invest in other Vanguard funds, most of which are -- of course -- index funds. The allocations in these funds won't change with you as you age and get closer to retirement, but you can move your investments among the funds as your risk tolerance changes. (The (VGSTX Quote)Vanguard Star fund is also worth a look. This portfolio invests in 11 actively managed Vanguard stock and bond funds.)

As usual, the low expenses on these Vanguard funds make them particularly attractive. The expense ratios are based on what the underlying funds charge. And Vanguard doesn't tack on an extra fee for assembling these portfolios.

But not every fund company is as sensitive as Vanguard when it comes to fees. When you're looking at any fund that invests in other funds, you should ask the fund company if it takes an additional fee on top of what the underlying funds charge. Fidelity charges a tiny amount -- just 0.08% -- on its Freedom funds. Other fund firms, like Kobren, take a lot more.

To be sure, these all-in-one funds aren't for everyone. If you have three decades to invest before you retire, you might want all of your money in the stock market. And you get to control your own asset allocation by buying individual stocks or funds. Or maybe you're a mutual fund fanatic and you want to pick funds yourself.

You also shouldn't expect to see outsize gains from these life-cycle funds. They're designed to provide balance and diversification rather than deliver triple-digit returns. But after the market's dismal performance over the past two years, most investors should be happy with annual performance that runs in the single digits.