Asset Allocation

En route to an 8-0 start, the New England Patriots scored points in remarkable bunches, and kept putting points on the board when the games were out of reach. Whether it was sports-talk radio, the post office, at school or just about anywhere, seemingly everyone was trying to define "running it up." In the middle of all of the discussions, it dawned on me that investors love running up the score, and don't recognize the problems it sometimes creates. In sports and investing, my definition of running up the score has less to do with points than attitude.

You may not have a lot of cash to invest and you probably can't afford a professional to decide where those dollars should go. With access to a 401(k) for the first time, new hires entering the work force may be at a loss when it comes to investing. What to do? Fewer new workers can count on a pension to fund their retirement, and Social Security may not be able to, either. But companies are beginning to embrace one option that makes investing easy for employees: target-date retirement funds (also known as life-cycle funds)

When it comes to retirement saving, is easier better? Investors are pouring money into target-date retirement funds, which key their asset allocation off a particular retirement date. In 2006, about $114 billion was invested in those funds, according to the Investment Company Institute, a 60 percent increase from the year before. Workplace retirement plans and individual investors are flocking to the funds because of their simplicity. Typically, they invest in underlying stock and bond mutual funds that are allocated to correspond with an investor's age. So a 2030 fund, for example, might contain a majority of stocks that would be appropriate for an investor in her 40s. But the investments automatically grow more conservative as she nears retirement age. Sounds easy enough.

Vanguard Asset Allocation Fund is one of the best, but it works very hard for its high status.This isn't one of those hybrid funds that stand pat with set asset allocations. Many of those vehicles that heavily overweight stocks have been phenomenally successful in recent years. This fund, on the other hand, has exerted quite a lot of effort for its excellent returns.Day-to-day manager Thomas Loeb has undeniably been helped along by the fund's S&P 500 indexed stock portfolio and its Lehman Brothers Long-Term Treasury index bond stake.

To the adage "don't put all your eggs in one basket," satirist Mark Twain once retorted: "Put all your eggs in one basket -- and watch that basket!"Twain was a wonderful writer. He might not have made it as a portfolio manager, however.How you apportion your eggs among the many available baskets available -- an exercise known as "asset allocation" -- could actually be more key to your investing success than the specific stocks, bonds or mutual funds you buy. Indeed, studies show that more than 90 percent of the difference between the returns earned by different investment portfolios is attributable to asset allocation.

IN THIS volatile market, are you worried about your 40l(k) and other investments?"Every major study shows that asset allocation -- how your money is divided among stocks, bonds and money funds -- accounts for 90 percent of your long-term investment success," says Ted Benna, president of the 401(k) Association."In the weeks ahead, re-examine your mix. Aggressive investors should have 90 percent of their money in stocks, moderate investors 50 percent and conservative investors 20 percent. The balance should go into bonds, bond funds and money market funds."

WHAT ARE the biggest mistakes investors make? Money magazine, September, lists these errors: Buying before doing research. Listening to tips. Sticking only to fixed-income investments -- CDs, T-bills, bonds, etc. Selling in a panic. Trading too often. Taking fliers on new issues. Losing sight of the long-term picture and becoming paralyzed by indecision.The top-performing mutual funds for 10 years, through June 30, were OTC Insight, MPT Review, New Issues, Timer Digest, the Chartist and Wilshire 5000 Total Return, according to Hulbert Financial Digest.

I HOPE YOU invest the maximum amount regularly in your company's 401(k) plan. It is one of the best investments around. Here are items to consider when managing your 401(k) or other retirement plans: 1. Regarding pre-retirement distributions, Consumers Digest says, "Americans change jobs an average of seven times over a lifetime, but since workers often must withdraw money from a pension plan when they leave, each shift is a temptation to spend a few years of retirement saving. Seventy percent of people who take pre-retirement lump sums spend it and don't save it for retirement."

Investing fads come and go, with everyone talking this summer about future technologies and computer stocks. Amid all the market chatter -- exchanged over cocktails, overheard on the train, whispered at museums -- people who have never put a dime in the stock market start to think about taking the plunge.But tips on hot sectors do not make sound advice for a first purchase. Constrained by a small budget or restrained by limited financial experience, the beginner needs an all-weatherinvestment, say a broad mutual fund, instead of a risky, high-flying technology stock.

Asset allocation -- the investment buzzwords of the 1990s.An army of investment firms and professional advisers would love to be in charge of allocating your assets. This requires that you give them free rein to divide up a portion of your money in order to weather the vagaries of the modern financial world.It's a handy way for investors to avoid getting personally involved in the continual juggling of their holdings. But don't be misled into thinking all asset allocation delivers identical results.

DALLAS -- Are target-date mutual funds missing the bull's-eye? It appears the answer is yes for many of these funds, which are designed to smooth a worker's path to retirement by automatically resetting the investments as the investor ages. Typically, a target-date fund changes its asset allocation to become less risky as the investor nears retirement. But because there are crucial differences in the funds' asset allocation, some of the more aggressive have racked up big losses in the recent bear market and have drawn the attention of regulators and lawmakers.

It's official. We're in a bear market. Now what? If you have done all those boring things that financial planners nag about, like making sure you have a diversified portfolio, you should be in good shape to weather the downturn. You might even be in a position to snap up bargains in the stock market while prices remain low. But if all your money is tied up in a narrow selection of stocks, you may be in for one of those hard lessons that bear markets deliver. A bear market is generally defined as a 20 percent decline from the most recent market high.

From 50,000 feet, your retirement doesn't look so good. Bearish financial markets, gloomy long-term projections for stocks, a sputtering economy - and that's just the big picture. Down at eye level - where you actually have some control over your finances - things aren't much better with milk and gasoline at $4 a gallon. But making the most of what you can control about your retirement finances can make a substantial impact, experts say. "Investors have at least four levers: how much they withdraw, how they allocate their portfolio, when they actually begin retirement and when they start taking Social Security," said Christine Fahlund, senior financial planner for T. Rowe Price Group.

Investors are pouring billions of dollars into target-date mutual funds, and Baltimore's Legg Mason Inc. wants a piece of that budding market. Legg plans to launch its life-cycle funds in August, joining a litany of other firms trying to capture a flow of money that has increased 50 percent annually in the past several years, according to mutual fund tracker Lipper Inc. Assets in these mutual funds are managed based on specific retirement years like...

The development of retirement target-date funds has been a blessing to all of us who don't want to make investment decisions or adjust our portfolios on a regular basis. All you have to do is choose a single fund based on the year you expect to retire, like 2020 or 2050. The fund does the rest. It makes the investment decisions for you, putting more of your money into stocks when you are young and can afford risk and gradually shifts more into bonds the closer you get to retirement. But all target-date funds aren't alike - particularly when you near retirement.

Even when stocks and the economy are humming along nicely, it's tough to convince our primitive instincts that we should sacrifice today to save for the future. So it should come as little surprise that retirement saving is taking a back seat to other issues in the economic downturn and housing slump. Retirement savings ranked as a lower priority than keeping up with monthly expenses for the first time since 2004, according to the Mercer Workplace Survey released in December. Another study, released by Transamerica Center for Retirement Studies, found that just 59 percent of workers claimed to be "very" or "somewhat" confident in a comfortable retirement, down from 75 percent a year earlier.

En route to an 8-0 start, the New England Patriots scored points in remarkable bunches, and kept putting points on the board when the games were out of reach. Whether it was sports-talk radio, the post office, at school or just about anywhere, seemingly everyone was trying to define "running it up." In the middle of all of the discussions, it dawned on me that investors love running up the score, and don't recognize the problems it sometimes creates. In sports and investing, my definition of running up the score has less to do with points than attitude.

When it comes to retirement saving, is easier better? Investors are pouring money into target-date retirement funds, which key their asset allocation off a particular retirement date. In 2006, about $114 billion was invested in those funds, according to the Investment Company Institute, a 60 percent increase from the year before. Workplace retirement plans and individual investors are flocking to the funds because of their simplicity. Typically, they invest in underlying stock and bond mutual funds that are allocated to correspond with an investor's age. So a 2030 fund, for example, might contain a majority of stocks that would be appropriate for an investor in her 40s. But the investments automatically grow more conservative as she nears retirement age. Sounds easy enough.

Three of the mutual funds I own that invest mostly in stocks have been particularly easy to keep during market downturns, without any temptation to bail out. It's no coincidence they also have been my most consistent moneymakers. The funds are Dodge & Cox Balanced, Oakmark Equity and Income, and T. Rowe Price Capital Appreciation. All three invest in diversified portfolios of stocks and fixed-income securities (and particularly for the T. Rowe Price fund, securities convertible into common stock)

Last month, I sold all the shares of a couple of stock mutual funds in my traditional individual retirement account and used the money to buy bonds for the IRA. That same day, I used some of my cash reserves to buy the exact number of shares of the same stock funds in a taxable account outside the IRA. While there are no tax consequences now, I figured the switch could save me quite a bit in taxes in the long run. I have since read a paper from a...