First introduced in the early 1990s, life-cycle funds offer investors pre-mixed doses of stocks, bonds, and cash according to their age and risk tolerance. Most fund families offer life-cycle funds in three formulas--aggressive, moderate, and conservative--that you can cycle through as you progress from a young, aggressive investor to an older, more conservative one. Some life-cycle funds are funds of funds, while others own individual securities outright.

All the life-cycle series share the same goal of first growing and then preserving your portfolio, but they vary in their methods. Some track indexes and maintain a more or less static mix of assets. Most life-cycle offerings, however, invest more actively. Even Vanguard, which promotes a passive indexing strategy in its Lifestrategy brochure, invests 25% of each life-cycle portfolio in the actively managed Vanguard Asset Allocation VAAPX.

In the hands of the right manager, such active management can produce good results. But when an active manager concentrates in an asset class at the wrong time, tactical shifts can be deadly. If such market-timing makes you nervous, then a passive index approach might suit you better. 

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