A few weeks back, I wrote about the "No-Fuss Portfolio," exploring the idea of constructing a long-term investment portfolio that could be set up and left alone to do its thing. Of course, lifecycle funds and target allocation funds have been marketed for years as no-fuss approaches to long-term investing. And with the passage of the Pension Protection Act late last year, more retirement plan participants will be encountering these one-stop-shopping products as the "default" option -- the one new participants end up in if they don't choose otherwise -- in their plans.

Lifecycle funds
I talked about lifecycle funds in detail a couple of months ago, so I'll just review the basics here. These funds, offered by large fund firms such as Fidelity, Vanguard, and T. Rowe Price (NASDAQ:TROW), are usually presented as a series of funds with different target dates. Such a fund buys a mix of stock, bond, and money market funds, usually all from the same fund family, and varies its asset allocation over time, becoming more conservative as the fund's target date approaches. The idea is that investors will put their entire retirement portfolios into the fund with the target date closest to their intended retirement date, and the fund will do the rest -- constructing a prudent portfolio of mutual funds, and rebalancing and reallocating that portfolio over time in accordance with generally accepted portfolio management principles.

Pros of lifecycle funds:

  • They really are a no-fuss portfolio option, but work best when you put all of your retirement money into the fund, which runs counter to many investors' instincts.
  • When combined with automatic enrollment programs, they are a huge boon for those who wouldn't bother participating in a 401(k) plan on their own.

Cons of lifecycle funds:

  • Most tend to underperform the market over time, thanks to limited choices for underlying investments, fees, and asset allocation policies that are more conservative than many investors would choose for themselves.
  • They can be expensive, with many having expense ratios well over 1.00%.
  • Holdings of underlying funds can be duplicative -- certain names appear over and over in the top holdings lists for the equity funds held by Fidelity Freedom 2030, for example, including American International Group (NYSE:AIG), Intel (NASDAQ:INTC), and JPMorgan Chase (NYSE:JPM). Your portfolio may not be as well-diversified as you think.

Targeted risk funds
Targeted risk funds are an older concept than lifecycle funds, and they're somewhat simpler creations. Like lifecycle funds, targeted risk funds hold a mix of stocks, bonds, and cash. Unlike lifecycle funds, the asset allocation is fixed. In some cases, these funds own stocks and fixed-income securities directly, as with Fidelity's venerable Asset Manager line. Others, such as the Vanguard LifeStrategy funds, are funds of funds, holding shares of other mutual funds that support their asset allocation strategies.

Pros of targeted risk funds:

  • The asset allocation stays fixed over time. If you want a consistent long-term strategy, here it is.
  • Also a no-fuss option, as the manager handles rebalancing and investment selection.
  • Underlying investments are less likely be duplicative than with lifecycle funds.

Cons of targeted risk funds:

  • It's up to you to select the fund with the asset allocation that matches your needs, and to change funds as your needs change over time.
  • Even so-called "growth" options are likely to underperform the stock market -- or a good equity fund -- over time.

So which is right for you? Before you can answer that, you need to develop an overall financial plan for your retirement. If you need help coming up with a plan, consider trying out the Fool's Rule Your Retirement newsletter. It will tell you everything you need to know to make a simple but effective strategy for your retirement investments -- and you can take a look absolutely free.

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Fool contributor John Rosevear loves the idea of a no-fuss portfolio, but likes stockpicking too much to ever invest in one himself. He doesn't own shares of the stocks mentioned in this article. JPMorgan Chase is an Income Investor recommendation. Intel is an Inside Value selection. The Motley Fool has a disclosure policy.