Lifestyle Funds for the Inert

"Overall, these types of funds are a good tool for investors to use vs. doing nothing," said Scott Majeski, senior consultant at Ibboston Associates in Chicago. "If you don't do anything else, using this fund is the next best alternative." That may sound like faint praise, but since most people do nothing, this is a great solution.

"This is a smart option for unsophisticated investors who aren't working with a financial planner," said Cynthia Meyers, a certified financial planner in Sacramento, Calif. Meyers said she doesn't typically use lifestyle funds unless a client's 401(k) plan doesn't offer more viable alternatives. "It's a good solution for people who have inadequate 401(k) plans." These funds are also an option for investors who lack the ready money to achieve diversification by buying different fund classes -- buying, say, five funds with a $2,500 minimum apiece makes it tough for some folks just getting started.

The Keys to Using Lifestyle Funds

I'll get to the specific options in a second -- I don't want to lose those inert folks out there -- but there are a few things investors need to know about how to best use lifestyle funds.

Don't use them in tandem with other funds. The value of these funds is that they offer one-stop asset allocation, as in 60% stocks (domestic large-cap, small-cap and foreign), 30% bonds and 10% cash for the moderate investor. If an investor chooses one lifestyle fund and one large-cap stock fund, for instance, you lose the balanced portfolio that the lifestyle funds offer.

Keep an eye on expenses. "You always want to look at the price," Meyers said. The expense ratio on a lifestyle fund shouldn't be any higher than the average mutual fund. Also, some fund firms tack on extra fees to assemble the lifestyle funds for you. If you can't figure it out from the prospects, call the company and ask.