Too busy or too nervous to invest in stocks? Lifecycle mutual funds could be your ticket to a happy retirement.

Not everyone is cut out for investing in the stock market. Some people don't have time to keep track of a diversified portfolio, one company at a time. Others don't feel qualified to do their own stock picking. Some don't want to be bothered shuffling their nest egg funds between various mutual funds, year after year.

If you want an easier way, say hello to the lifecycle mutual fund, a stress-free way to keep a retirement portfolio properly balanced for decades.

Automatic diversification

Like many other mutual funds, a lifecycle product is a basket of stocks, bonds, and other investment vehicles all neatly packaged into a single, easy-to-use ticker symbol. But this one comes with a twist: pick your fund based on when you expect to retire-then sit back and watch its holdings adjust to the proper risk levels along the way.

In other mutual funds, the investment goals never change. Income funds go after dividend-paying investments, growth funds look for expanding markets, and a balanced mutual fund tries to maintain a certain level of equilibrium between different investing strategies.

These products can be great tools for an informed investor who can rebalance the portfolio every now and then. A 20-year-old can afford to take greater risks than someone with just a few years left before retirement. The young gun grabs growth, while the senior needs more bonds and government paper. The lifecycle fund automates that transition for you, leaving the risk-reward calculations up to the professionals as you practice your golf swing. A "2015" fund might hold 65 percent stocks and 35 percent bonds today, moving to 30 percent stocks and 70 percent interest-bearing investments by 2015.

Gaining popularity

Lifecycle funds have become more popular in recent years, as many 401(k) plans have made them the default choice for fresh contributions. Even as the S&P 500 benchmark fell 6.1 percent last January, funds in this class increased their holdings as investors poured money into them. At the end of 2007, they managed a total of $197 billion.

It's not a new idea, and some management companies have already been offering lifecycle funds for decades. But by their very nature, these funds don't stay around forever, and many have very short operating histories. Look for a proven management team, and make sure that the risk profile fit your own goals. A fund like this works best when you're very comfortable with the chosen plan and its progression, and even better if it's the only thing in your portfolio. After all, stocks on the side will eventually throw that carefully chosen balance act off balance.

It's hard to beat a lifecycle mutual fund when it comes to stress-free investing. Leave the stock picking to the professionals, and let the caffeine junkies have the biggest wins in the market-and the hardest crashes. Slow and steady adjustment generally wins this race.

Published on August 30, 2008