(MONEY Magazine) – The March of the All-in-One Funds

• Quick, which type of fund is today's fastest seller? Small-cap value, the hottest group of the past 12 months? Actually, no. The current champ is life-cycle funds, a mild-mannered genus that offers a complete portfolio in a single fund. Financial Research Corp. reports that so far in 2005 the moderate asset-allocation category--made up largely of life-cycle funds--has pulled in $23 billion of new money, $8 billion ahead of No. 2, large-value funds. Pretty amazing for a group that averaged a modest 7.2% return in the past 12 months.

To explain this apparent outbreak of mass prudence, look no further than 401(k) plans. Nearly two-thirds offer life-cycle funds, and many guide workers to them.

Even with these funds, though, look before you buy. For starters, life cycles come in two types. So-called target-risk funds aim for a specific risk level. As your taste for adventure changes--as you grow more cautious near retirement, say--it's up to you to shift from one life-cycle fund to the next. So-called target-maturity funds, on the other hand, shift automatically to a safer mix as you age. But even with this breed, check before you buy since asset mixes vary. The Vanguard Target Retirement 2025 holds 60% of its assets in stocks, for example, while T. Rowe Price Retirement 2025 holds a more aggressive 85%.

One note: Life-cycle funds are designed to be whole portfolios, so they make the most sense if they're your only retirement fund. Since that's not always practical, at least make sure that the other funds you own carry on the life-cycle fund's asset-allocation strategy. Keep that prudent impulse alive. --PENELOPE WANG

Small- and midcap value funds may be topping out now, but their strength is clear over the past year.

NOTES AND SOURCES: Unless otherwise noted, data as of June 23 from Lipper, New York; 877-955-4773. Life-cycle category data from Morningstar. [1] Annualized. [2] Closed to new investors. N.A.: Not applicable.