While industry watchers say "target-date funds" are providing a key solution for investors, the question no one seems to want to answer is whether the way investors are using these life-cycle funds is off-target.

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More than one- quarter of the money flowing into mutual funds during the first half of 2008 went into “target-date funds,” issues where the portfolio’s asset allocation is designed to age — and become more conservative — with the shareholder.

While industry watchers say this is proof that the funds are providing a key solution for investors, the question no one seems to want to answer is whether the way investors are using these life-cycle funds is off-target.

The answer depends on the investor and his portfolio, but the people who use target-date funds wrong may be upsetting their balance of risk and reward and could wind up disappointed with the long-term outcome.

To see why, consider the target-date fund and how it is supposed to work versus how it is often used.

Target-date or life-cycle funds have been around for about a decade now; typically, they are dated for the year when the investor expects to hit retirement age, so that someone who is 45 today would be looking at a fund dated 2025 or 2030. The farther out the target date, the more aggressive the fund; management does the asset allocation work for the shareholder, morphing from a stock-heavy portfolio to a bond-driven issue.

When the Pension Protection Act was passed by Congress two years ago, it gave a huge boost to target-date funds, letting employers offer them in retirement plans, an ideal default choice for investors looking to make one simple and easy choice.

But many people pick their target based on self-perceptions. “I can stomach more risk, so I’ll invest like someone younger,” or “I need to play catch-up, so I want a more-aggressive fund,” or “I’m planning to work until I’m 70 or 75, so that age will be my target year.”

You should recognize that altering the approach by using a fund aiming at a different target may well lead you to a different financial destination.

“You can’t just move one of the risk levers — by trying to make up for lost time by acting as if you are 10 years younger — without moving another, and once you make the change, you’re not going to wind up in the same place,” says Stuart Ritter, a certified financial planner with T. Rowe Price.

Of course, having some money in a target-date fund and the rest in other funds also changes your approach to retirement investing, which is why some fund specialists believe target-date funds are a great one-fund portfolio, but don’t mix so well with other investments.

“It’s not always the case that the target retirement fund will be the best choice,” says John Ameriks, head of Vanguard’s Investment Counseling and Research Group. “If you lift the hood, see what’s there and want to set your own allocation, you will probably be better off building your own portfolio, without a target-date fund.”

Chuck Jaffe is senior columnist at MarketWatch. He can be reached at cjaffe@marketwatch.com or Box 70, Cohasset, MA 02025-0070.