Target-date funds a solution
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About 90 percent of target-date funds are "funds of funds," meaning they contain other mutual funds. For instance, the Vanguard Target Retirement series contain the low-cost index funds for which Vanguard is famous. The Fidelity Freedom funds and T. Rowe Price Retirement series contain actively managed funds run by their own firms. Principal Investors LifeTime funds contain a mix of their own house funds as well as funds from other firms. Unlike most target funds, Barclays Global Investors LifePath funds are not composed of other funds but rather are run by portfolio managers as individual funds.

Asset allocation strategies can vary quite a bit among these funds. T. Rowe Price has a reputation for offering the most aggressive mix. Its philosophy: Investors need more stock exposure to offset such risks as inflation and longevity. Even its Retirement 2010 fund, appropriate for those who face imminent retirement, has a 63 percent weighting in equities, compared to less than 50 percent for most other funds with that target date.

Foreign stock holdings can vary substantially among funds with the same target date as well. For example, John Hancock 2 Lifecycle 2040 invests a third of its assets in foreign stocks, while Vanguard Target Retirement 2040 has less than 18 percent invested in stocks outside the U.S. The same holds true with riskier small-cap stocks; some funds have higher stakes than others. You can research holdings at the sites of the individual fund firms or go to Morningstar to learn specifics.

Which funds does Morningstar favor?

"The target-date fund series we like the best are from Vanguard for their low costs -- and you're getting broad diversification," Carlson says. "T. Rowe Price is our other favorite series. That's because their funds are actively managed, but they're pretty reasonably priced and they tend to do a lot of things well," he says. As an example, they include most of their best-performing funds in the underlying portfolios.

Why not cite the omnipresent Fidelity Freedom funds, which command about 50 percent of the market?

"Fidelity's Freedom funds tend to include some of their more mediocre offerings," says Carlson. Many of the Freedom funds contain a couple of dozen funds, he adds. "They end up with a lot of overlap." For instance, you might see three large-cap growth funds in a single target retirement fund, he says.

Cost should be the biggest factor in your decision to buy into a target retirement fund. Another factor to consider is its asset allocation -- does it match your risk tolerance? Is it too tame or too wild for your liking? Do you need to supplement your portfolio with a high-yield bond fund or another small-cap fund to rev it up a bit?

If you're a fund fanatic, choosing a target-date fund may not be enough of a challenge for you. It's just too easy. But if you're like most people who'd rather not be bothered with trying to figure out your portfolio's optimal asset allocation, let alone which funds might do the best job of helping you meet your goals, target-date funds can be an excellent solution for your retirement challenges.

On the next page is a listing of some of the more popular target-date funds as well as their asset allocation characteristics, according to Morningstar.