The double bear market of this decade and resulting 38% decline may sour many on the stock market. Still, people need to save money and give it a chance to grow over the long term.

iShares has just launched four ETFs -- ETFs of ETFs, actually -- that might address the disinterested investor better than target date funds do.

  • iShares S&P Aggressive Allocation Fund (AOA)
  • iShares S&P Growth Allocation Fund (AOR)
  • iShares S&P Moderate Allocation Fund (AOM)
  • iShares S&P Conservative Allocation Fund (AOK)

All four risk models, created by S&P, use a fixed allocation that allows investors to look under the hood to see what each fund holds and then pick the most appropriate mix.

As with any concept, there are pluses and minuses. On the plus side is transparency, having someone else do the work of rebalancing and removing human emotion and thought from the equation. The funds, for better or worse, will manage themselves. Investors can set and forget, provided they choose the correct allocation, which may not be easy to do.

The funds will provide exposure to broad markets, but that exposure is far from perfect. All four use the same iShares funds, in different percentages, to create target weightings. For equities, the four funds use five ETFs in different weights: iShares S&P 500 Index Fund ( IVV), iShares S&P Mid Cap 400 Index Fund ( IJH), iShares S&P Small Cap 600 Index Fund ( IJS), iShares MSCI EAFE Index Fund ( EFA) and iShares MSCI Emerging Markets Fund ( EEM). A sixth equity fund, depending on how you characterize REITs, is the iShares Cohen & Steers Realty Majors Fund ( ICF).

Those funds would seem to cover a lot of bases, but there are also gaps including the inability to make sector or country decisions. Then again, someone who has become less interested in active participation may be willing to give that up. There are a couple of asset classes that are missing altogether: commodities and foreign bonds. Depending on how the next 10 or 20 years play out, those could prove to be costly omissions.

A potentially thornier issue is the high correlation that exists among the funds. The lowest correlation I could find was around 0.80 between EEM and IJR and IJH. IJR, IJH and EFA correlate at greater than 0.90 with IVV for the past year, according to PortfolioScience.com.

Correlations have gone up during this bear market, not an uncommon occurrence, and anyone interested in these funds should not expect them to be immune from future bear markets. As an example, the growth allocation, AOR, would have been down 28.7% year to date had an investor implemented the ETFs in the exact manner AOR targets, compared with the S&P 500's 38% decline. Depending on the investor, this may or may not be acceptable. I would note that AOR targets roughly a 70% equities/30% fixed-income allocation.

AOA, the aggressive fund, targets 92%/8%, AOM targets 49%/51% and AOK targets 29%/71%. The fees are quite reasonable, with none of the funds costing more than 35 basis points.

Above, I mentioned that these allocation funds could be a better alternative to target date funds. The allocation funds have a fixed allocation and rebalance to the allocation objective annually. Target date funds gradually move to more and more fixed income as time goes on.

The problem with this is that people in their late 50s or early 60s who are healthy and have one or both parents still alive probably have a long time horizon in front of them and run the risk of being too conservative. A 60-year-old might look to a target date fund for 2015. The iShares S&P Target Date 2015 Index Fund ( TZE) has a 50%/50% allocation now, but in 2015, TZE will likely have only 33% in equities. Sixty and healthy could mean living to 90, which means the loss of purchasing power becomes the biggest financial threat.

The proper allocation fund, for someone looking to be a less active market participant, can allow for a better balance of having enough growth exposure and being able to sleep at night.
At the time of publication, Nusbaum held none of the securities mentioned in this story, although positions may change at any time.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.