Low-maintenance funds still require decisions

NEW YORK — Page Neal socks away money into her savings but acknowledges she doesn't want to fuss with a lot of decisions about where to invest. She's not alone and is just the type of arm's-length investor that mutual-fund companies are seeking.

For workers like Neal, 26, a jewelry designer, retirement is likely still several decades away. So deciding where to invest now for something so far off can be daunting.

Knowing how many questions investors often have, financial companies have been pushing funds in recent years that automatically grow more conservative as retirement nears. But although these target-date funds are designed to work essentially on autopilot, there are still some questions investors should consider.

Investors need to determine how much of their portfolios should be in target-date investments. The funds are envisioned as one-stop-shopping investments — something with enough diversity to serve as the base of an investor's holdings. Still, investors would often do well to consider other investments as well.

Someone who panics and dumps a fund when markets fall can destroy much of the benefit of a long-term investment like a target-date fund. Used correctly, though, these funds can save investors from themselves. Keeping a far-off retirement date in mind might prevent some investors from calling their brokers with a sell order. Still, for those who want to wrap an overall investment philosophy around target-date funds, investors in Old Mutual Capital's Target Plus funds can get a fund that matures near when they want to retire and also one of three versions of that fund: conservative, moderate or aggressive.

Beyond trying to evaluate how much risk a fund might take, investors would likely want to determine how well a fund is performing. But that can be difficult because there isn't a widely used yardstick for measuring target-date funds, notes Jeff Tjornehoj, an analyst at fund-tracker Lipper. It's not like with a mutual fund investing in large-capitalization stocks, for example, that would be measured against the Standard & Poor's 500 index.

"I think a lot of the head-scratching on the part of investors considering target-date funds and their comparability resolves around the lack of a solid index," he said.

So investors considering a target-date fund might want to look at how it is doing compared with others with the same target year.

"I'd say you want to look at their relative performance," Tjornehoj said.