I got an email from a reader a few days ago. The message was in response to my article, What to Invest in Now. It had to do with asset allocation and risk management, which my article touched on briefly. The reader pointed out that his company had helped him solve the allocation vs. risk problem in the most optimal way possible. His company had just contracted with a major mutual fund company to provide access to a family of professionally managed retirement date targeted mutual funds.

Did you get that? It's a mouthful. Here's what it means. He can now put some or all of his 401-k savings into a certain type of managed account structure within his 401-k. He then tells the manager what he wants his expected retirement date to be. Within the managed account structure, his funds are then apportioned among a number of mutual funds according to some optimal asset allocation formula known only to his 401-k management company.

It's a slick idea. Someone within 5 years of retirement might have a different risk vs. return outlook than another who is 25 years from that golden moment. As we get closer to retirement we'd like more assurance that our retirement nest-egg will be there for us, faithfully generating cash to live on. This new managed account structure takes care of the risk vs. return allocation for each and every participant, automatically allocating the investors portfolio among various types of mutual funds to achieve an optimal risk vs. return mix according to how many years he or she is from retirement.

I think these kinds of supervisory funds are probably a very good idea. The average investor can simply put his money into his account and forget about it. The manager takes care of all the allocation decisions for him. The only reservation I might have with a plan like this has to do with fees and expenses. I'd want to be sure to look at what this professional manager is costing me. I'd want to be sure it was not an unreasonably large fee. In the case of a 401-k, investment choices are almost always limited to mutual funds only. Allocating funds between various mutual funds would probably be done automatically. I'd want to be sure the management fees and expenses are in line with that sort of mechanism, rather than as if my money were being actively managed.