Shopping has never been among my favorite pastimes. If I can find something that will meet my needs conveniently and inexpensively, I'm interested! If I can find everything I need in one store, so much the better.

But investors who take shortcuts may short-change themselves without realizing it.

Pat in Kansas City, recently intrigued by some investing shortcuts, sent me the following question: "What do you think of Fidelity's Freedom funds, which are promoted as maximizing diversification by investing in other Fidelity funds?"

Fidelity has six Freedom funds, each aimed at a slightly different target investor.

The firm is not alone in packaging its funds. T. Rowe Price offers similar Spectrum funds. Vanguard's four LifeStrategy funds are also aimed at the same market: investors who want everything in a single package.

There's nothing really wrong with these funds. However, I think they are suitable only for investors who can answer "yes" to the following two questions:

1. Is simplicity more important to me than getting the highest returns for the risk I'll be taking?
2. Am I willing to have my money working only moderately hard for me as long as I have the illusion that I'm "doing the right thing?"

I don't know if Pat has teenagers, but I'm sure she knows somebody who does. And I'd like to see her reaction if a teenager tried to convince her that two carrots, a milkshake and a power bar is the nutritional equivalent of a balanced diet.

I bet Pat would laugh out loud. And that's what savvy investors should do when they run into the notion that all-in-one "lifestyle" funds give investors the diversification they need.

Actually I'm not sure if Fidelity ever makes that claim, as Pat implied. Fidelity's online description of Freedom 2020 doesn't promise to maximize diversification. Instead it says the fund invests in a combination of equity, income and money-market funds "according to an asset allocation strategy."

That's certainly accurate, but it doesn't tell an investor very much. Lipper classifies Freedom 2020 as a growth and income fund. Morningstar's Web site calls it a large-cap blend fund and says it "mostly owns large U.S. stocks and high-quality bonds."

But the real acid test of this fund isn't any description. It's performance. That's what investors want, and it's what they deserve for taking the risk of committing today's dollars to an uncertain future.

Now it seems reasonable to me that if Fidelity's Freedom funds provide true diversification, then their performance should have more resemblance to that of a properly diversified portfolio than to the Standard & Poor's 500 Index.

Before we look at the numbers, I want to remind readers that proper diversification means a portfolio with major allocations in international funds, value funds and small-cap funds, to balance the usual mix of U.S. large-cap growth funds.

Investors can get that diversification with the equity part of our Vanguard Model Portfolio, which includes seven Vanguard funds: 500 Index (VFINX), Value Index (VIVAX), Small Cap Index (NAESX), Small Cap Value Index (VISVX), Developed Markets Index (VDMIX), International Value (VTRIX) and Emerging Markets Stock Index (VEIEX).

To put Fidelity Freedom funds to the test, we picked the Freedom 2040 Fund (FFFFX: news, chart, profile), which is weighted 85 percent to stock funds and 15 percent to income funds. And we picked the first eight months of this year, January through August 2002. In those eight months, Freedom 2040 had a loss of 18 percent.

Alternatively, an investor could have simply invested 85 percent in the S&P 500 Index ($SPX: news, chart, profile) and 15 percent in the Lehman Bros. Aggregate Bond Index -- the basis for Vanguard's Total Bond Market Index Fund (VBMFX: news, chart, profile). That investor's return in January through August would have been a loss of 15.7 percent.

The score so far: Freedom 2040, down 18 percent vs. two simple non-diversified indexes, down 15.7 percent.

Now let's see how those returns stack up against what we consider "real" diversification. A mix of 85 percent equity and 15 percent fixed-income in our recommended Vanguard funds declined 10.8 percent.

The final score: Freedom 2040, down 18 percent; two simple non-diversified indexes, down 15.7 percent; a properly diversified fund portfolio, down 10.8 percent.

Did other brands of all-in-one funds do better?

The T. Rowe Price Spectrum Growth Fund (PRSGX: news, chart, profile), which is all equities, was down 20.9 percent.

Vanguard's LifeStrategy Growth (VASGX: news, chart, profile), which has roughly the same overall allocation as Fidelity Freedom 2040, lost 16.8 percent in the first eight months of this year.

My conclusion: In a very difficult period for the stock market, meaningful diversification protected assets much more effectively than the pseudo-diversification of all-in-one funds.

It's true that during periods when the markets are doing well, these funds might be fine for many investors. But when the going gets tough, as it has for the past few years, investors need proper diversification.

Unfortunately, they won't get the diversification they need from Fidelity's Freedom funds, Vanguard's LifeStrategy funds and T. Rowe Price's Spectrum funds. Those funds give investors the illusion of diversification -- but not the substance.