January 31, 2006 Forget those thousands of mutual funds that stand between you and wise retirement-saving decisions. Fund investing doesn't have to be complicated. Whatever your age, you can simplify the process considerably by assembling one of our portfolios of index funds.Index funds are designed to track a particular benchmark, such as Standard & Poor's 500-stock index or the Russell 2000 index of small-company stocks. Ownership costs are less than for traditional funds, which gives index funds a big edge in the long-term performance derby. If you prefer actively managed funds, turn to page 58 to see our favorites. We offer three portfolios -- each for a different stage of your life -- made up entirely of index funds. Two of the packages use traditional funds, and the third employs exchange-traded funds. Starting out If you're in your twenties or thirties and decades from retirement, this all-Vanguard portfolio is for you. It's aggressive -- 100% invested in stock funds. It will be volatile, but over the long term it should outperform portfolios that contain more-conservative investments. Advertisement STOCK UP Symbol 30% Vanguard 500 Index VFINX 25% Vanguard Small-Cap NAESX 20% Vanguard Total Intl Stock VGTSX 15% Vanguard Growth VIGRX 10% Vanguard Emerg Mkt Stock VEIEX nbsp nbsp nbsp nbsp nbsp nbsp nbsp The anchors of the portfolio are funds that track the broad U.S. stock market (500 Index) and the major foreign markets (Total International). We add pizazz by including funds that specialize in emerging-markets stocks, domestic small-company stocks and shares of large, fast-growing companies. That last pick represents a small bet that after six years of mediocre performance, large-company growth stocks will rebound. Mid career CUT RISK Symbol 30% Vanguard Tot Stk Mkt Vipers VTI 20% iShares Lehman Agg Bond AGG 20% iShares MSCI EAFE Index EFA 15% iShares Dow Jones Sel Dvd DVY 5% Vanguard Emerg Mkt Vipers IVW 5% Vanguard Emerg Mkt Vipers VWO Designed for workers from their late forties to their mid fifties, this portfolio is made up exclusively of exchange-traded funds. ETFs are index funds that you buy and sell just like you do stocks. You pay a commission with each transaction, making ETFs less than ideal for a regular purchasing program. But if you invest a large chunk of money at once, you'll probably come out ahead using ETFs because their fees are lower than even those of standard index funds. This portfolio is somewhat less risky than the all-stock package because it allocates one-fifth of assets to a bond fund, trims the allocation to emerging-markets stocks and adds a dividend-oriented stock fund. In retirement BOOST INCOME Symbol 25% Vanguard Short-Term Bond VBISX 25% Vanguard Total Bond Mkt VBMFX 25% Vanguard Total Stock Mkt VTSMX 15% Vanguard Total Intl Stock VGTSX 10% Vanguard REIT VGSIX Using traditional mutual funds, this portfolio focuses on generating income and reducing risk once you can no longer count on a steady paycheck. Yet it still devotes 50% of assets to stocks. Today's young retirees can easily live another 30 years, and their investments need to grow to offset the ravages of inflation. Advertisement To diversify, the portfolio also includes a fund that tracks an index of real estate investment trusts -- high-yielding stocks that don't follow the overall stock market very closely. Bonds, which represent half of the portfolio, are split between a fund that mirrors the overall bond market and one that follows an index of short-term bonds, which generally are low-risk investments. Do it now STARTING OUT Don't worry about short-term market fluctuations. Put all of your retirement money in stock funds, including some riskier funds. MID CAREER Time to start thinking about cutting risk by adding bonds. As you approach peak earnings, add as much as you can to your retirement kitty. IN RETIREMENT Look for income-generating investments and cut risk, but don't go overboard. You'll need some growth to help tide you over for what could turn out to be a lengthy retirement.