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NEW YORK – Even though more 401(k) plans are offering mutual funds with preset asset allocation features, some aren’t using them the way they were intended. Ideally, the funds are established to be stand-alone but investors are using them, commonly referred to as asset-allocation of lifestyle funds, as another investment layer in their 401(k) plans. According to Hewitt Associates, a Lincolnshire, Ill.-based consulting firm, the average 401(k) plan participant with an asset-allocation fund held an average of 4.8 funds in 2003. Thirty-two percent had more than one lifestyle fund and 15% were invested in a single asset-allocation fund and nothing else. Currently, about 63% of 401(k) plans offer at least one asset-allocation fund, up from 35% in 2001 and 19% in 1997, according to Hewitt. Mixing the asset-allocation fund with other investment options does away with one-stop shopping that preset asset allocation is supposed to offer, industry experts say. Investors may also make the mistake of not choosing the right fund with many picking moderate asset-allocation, regardless of their age or risk tolerance, she says.

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