Finally, Choices Tailored to the Investor’s Age

Age is a key variable that helps determine what types of mutual funds a person should own. Younger investors generally can afford to be more aggressive with their money, while older people would want to stay more conservative.

There’s certainly nothing earth-shattering about that, but it is somewhat surprising how long it took mutual fund companies to make the connection in marketing funds.

Only within the last year or so have a few fund groups come out with portfolios specifically for people in certain age groups. Until then, virtually all funds had been categorized and sold either by the types of assets held or their risk profiles, not by the age or perceived investment horizons of shareholders.

The difference is a subtle but significant one. By offering people a ready-made mix appropriate to their ages, fund companies are making the investment process a little simpler. It’s one thing to purchase a growth or balanced or bond fund, yet quite another to know if it suits your circumstances and in what amount.

Also, some life-cycle funds slowly alter their investment mixes to become more conservative over time, so it is unnecessary for shareholders to revamp or even readjust their holdings as they grow older.

The latest player to come out with a series of life-cycle funds is the Vanguard Group of Valley Forge, Pa. The company last month started to market four LifeStrategy portfolios and has attracted $55 million so far.

Each of the four LifeStrategy offerings invests in other Vanguard funds, using a 30% stake in Vanguard Asset Allocation as an anchor. The Asset Allocation portfolio has latitude to make wide shifts among stocks, bonds and cash but will tend to maintain roughly a 60-35-5 breakdown among the three.

The most aggressive of the four is LifeStrategy Growth, for shareholders under 50. Its mix will tend to stay around 63% in U.S. stocks, 20% in bonds, 15% in foreign stocks and 2% in cash.

Least aggressive is LifeStrategy Income, for people 75 and older. For this fund, the usual weightings are 23% in U.S. stocks, 75% in bonds and the rest in cash, with nothing in foreign stocks.

Rounding out the lineup are LifeStrategy Moderate Growth, with roughly a 63% stake in U.S. and foreign stocks, and LifeStrategy Conservative Growth, with approximately a 40% exposure. The former is for investors in their 50s; the latter is for those between 60 and 75.

All four portfolios contain some stock holdings, which are among the best assets for inflation protection.

Assuming you like to pick and monitor mutual funds, you probably wouldn’t be content with the simplified mixtures represented by the LifeStrategy funds.

“If you are at all active, we feel you will be better off doing your own allocations, particularly if you require tax-free securities,” said Sheldon Jacobs, publisher of the No-Load Fund Investor newsletter in Irvington-on-Hudson, N.Y.

What’s more, the LifeStrategy funds keep sparse international holdings and have no exposure in the highly promising area of emerging markets.

“You can probably create a better mix of Vanguard funds yourself and retain control all the while,” Daniel Wiener, editor of the Independent Adviser for Vanguard Investors in Watertown, Mass., wrote in the newsletter.

Nevertheless, for both beginning and advanced investors, the LifeStrategy funds can serve as solid core positions to which more exotic fare can be added. They also can be good starting points for people who have just a few thousand dollars to invest.

The LifeStrategy products feature very low expenses of roughly 0.33% a year, equivalent to an annual charge of about $10 on a minimum $3,000 investment. The funds ((800) 992-8845) are sold without a sales load or commission.

Earlier this year, Wells Fargo Nikko of San Francisco came out with five Stagecoach LifePath funds, also available without sales charge and accessible with a lower minimum investment amount ($1,000) than Vanguard funds, but with higher annual expenses (1.2%).

The most conservative portfolio, designed to be held until the year 2000, will maintain roughly a 20% position in stocks. The most aggressive LifePath selection, appropriate for people likely to hold until 2040, will keep close to 100% in stocks.

The maximum foreign stock exposure for any fund is 10%.

An interesting twist to the LifePath funds is that each one gradually becomes less aggressive over time. The implication is that shareholders don’t have to revamp or even rebalance their holdings as they age.

“The LifePath funds are designed for people who are not mutual fund hobbyists,” said Don Luskin, a Wells Fargo Nikko managing director.

They’re especially appropriate for less sophisticated investors in 401(k) or other employer-sponsored retirement plans, he said.

The LifePath funds, which count about $250 million in assets, are sold in California through Wells Fargo Bank branches or by telephone ((800) 222-8222).

For people working with a broker, Putnam Investments of Boston has garnered about $300 million in its three Lifestage Asset Allocation funds since it introduced them last fall.

The Growth portfolio, for people in their 20s and 30s, usually has an 80% stake in equities. The Balanced portfolio, for those in their 40s and 50s, maintains 65% in stocks.

The third and least risky fund, the Conservative portfolio, caters to people 60 and older. It keeps only about 35% of its holdings in the stock market.

The Putnam funds ((800) 225-1581) are sold in two versions: Investors can pay a maximum 5.75% sales charge or buy no-load shares.

The no-load shares carry ongoing expenses of about 2% annually, compared to less than 1.3% for the load shares. Over time, the latter could prove to be cheaper.

T. Rowe Price Associates of Baltimore ((800) 638-5660) and Sierra Trust ((800) 222-5852) in Los Angeles are two of the other fund companies that also offer asset-allocation products, though without paying much attention to investor age.

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Shearson Lehman’s mutual funds have been folded into the Smith Barney group a little more than a year after they were acquired. The combination creates the ninth-largest fund family, with 70 open-end portfolios and assets of $58 billion.

Brokerage Smith Barney and its mutual funds are a subsidiary of the Travelers Group financial services firm, which has $115 billion in assets.

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MUTUAL FUND REPORTS: The Los Angeles Times now offers up-to-date information on any of 4,000 funds. Each six-page review includes Morningstar ratings, commentary, history and risk analysis. Cost is $9.95 for the first report; $8.50 for each additional report ordered at the same time. To order, call (800) 989-9500.