Dear Dagen: What Funds Should I Buy Now in My Roth IRA?

Of course, all that stock exposure brings a lot more volatility. The S&P 500 fell 22% last year. You have to ask yourself: Can you stomach that kind of plunge? That might not happen again for years to come but it certainly could.

Frankly, most investors -- even ones in their 20s -- could use some bonds in their portfolios. And assuming that you haven't overdosed on bonds like so many other investors in the last two years, you need some stocks and bonds and cash.

You can get all three with just one mutual fund. You can buy a balanced fund that invests in individual stocks and bonds, like the (EBALX Quote)Eclipse Balanced fund. But very often, a balanced fund will have a set allocation of, say, 60% in stocks and 40% in bonds, which doesn't vary too much. And frankly, that asset mix is probably too conservative for someone who's going to retire in another 30 or 40 years.

Instead you can look for a stock and bond fund that will age with you. Fidelity offers six asset-allocation funds called its Freedom funds, which invest in other Fidelity funds. The allocations in these funds will get more conservative as you get closer to retirement. You only have to match your retirement date to the number in the fund's name. The (FFFEX Quote)Freedom 2030 fund, for instance, is designed for investors who are going to retire in just under 30 years. The fund owns 13 different stock funds and five bond funds.

Vanguard also offers several funds that invest in the firm's own funds. Its so-called LifeStrategy funds are geared toward different levels of risk. Unlike the Fidelity Freedom funds, these portfolios won't change their allocations over time. But that's a small sacrifice for funds that are so cheap. The (VASGX Quote)Vanguard LifeStrategy Growth fund, for example, owns three broad Vanguard index funds and its (VAAPZ Quote)Asset Allocation fund. Plus, it only costs 0.28% a year to own.