Here's the problem: you tend to earn far less with short holding periods and high portfolio turnover. Besides reducing your brokerage fees, longer-term investing lets you enjoy the magic of compounding -- earning returns on reinvested dividends and capital gains.

I.G. Investment Management found that the average stock fund earned compounded annual returns of +11.5% over a time span of 17 years. Unfortunately, the average investor held the funds for less than three years and captured compounded returns of just +4.2% along the way. Put another way, the average investor lost 63% ((11.5 - 4.2%)/11.5%) of his/her potential returns by getting impatient.

A recent study by research firm Dalbar entitled 2007 Quantitative Analysis of Investor Behavior comes to the same conclusion. Dalbar found that most investors earn far less than a fund's five- or ten-year average annual returns because they don't hold the fund that long. In fact, buying into an investment using dollar cost averaging over 20 years will give you +40% higher returns than if you simply held that investment for just a few years, the study said. (Dollar cost averaging involves the purchase of small blocks of shares at different prices over an extended period of time.)

The good news is certain types of funds are specifically designed for long-term investing. These "asset-allocation" or "retirement" funds include a range of different types of target-date, lifecycle or balanced funds. Whatever their name, they all seek to maximize long-term returns for a given level of risk by carefully balancing the portfolio between stocks and bonds.

A target-date fund like Vanguard Target Retirement 2010 (VTENX), for example, is designed for investors nearing retirement in 2010. It can also be used for sending a kid to college, buying a boat, or for any other purpose. You can hold the fund until it "matures" to its most conservative investment profile, or you can cash out at any time.

A fund like VTENX is really a "fund of funds." It invests in other stock and bond funds managed by Vanguard. Between now and 2010, the fund managers will rebalance the portfolio periodically, making it increasingly more conservative in an effort to protect your principal as the final year approaches. More aggressive growth stocks will give way to high-grade bonds, preferred shares, and blue-chip dividend payers that pay a secure income. Today, for example, the fund is weighted 55% to stocks and 45% to bonds, but after 2010 it will move closer to a 30% stock/70% bond allocation like that employed by Vanguard Target Retirement Income (VTINX).

Life-cycle funds like T. Rowe Price Personal Strategy Balanced (TRPBX) are similar, but many have a static mix of investments geared to a certain age group. It's up to you to decide when to move into more conservative investments. Meanwhile, old-fashioned balanced funds like Vanguard Tax-Managed Balanced (VTMFX) simply hold a mix of asset classes ranging from investment-grade bonds to growth stocks in an effort to balance risk with reward.

In any case, the latest Dalbar study of investor behavior over the past two decades confirms what previous studies have shown -- that investing for the long term is the best way to maximize returns. And since investors tend to hold asset-allocation funds at least a year or two longer than ordinary stock or bond funds, these securities can help you earn maximum returns, even though they aren't necessarily the highest-yielding funds around.

In response to the aging baby boomer crowd, asset-allocation funds have become one of the fastest-growing segments of the fund market. Most have also shown remarkable resilience in the face of recent market volatility. Given the benefits of stock/bond diversification, asset-allocation funds outperformed almost all stock-only funds when the market turned south this past summer, according to Morningstar.

With this in mind, I recently hunted down some of the highest-yielding of these "all-weather" funds . . . 

Important Note: Throughout the remainder of this article, Editor Carla Pasternak provides the names of 9 specific asset allocation funds ("retirement funds") with dividend yields of up to 8.8%.  However, in order to view the remainder of this article, you'll need to subscribe to her premium newsletter -- High-Yield Investing. After you subscribe you'll receive immediate access to this full article, as well as her monthly High-Yield Investing newsletter and a host of additional premium content. Please visit one of the following links to continue . . . 

Good investing!

Carla Pasternak
Editor
High-Yield Investing

About High-Yield Investing

High-Yield Investing is a monthly investment newsletter that brings you a wealth of information on the market's leading income stocks and funds, as well as a host of relatively unknown investment options that you probably won't find coverage of anywhere else. Many of these securities provide investors with annual dividend yields of 10%, 15%, even 20% or more. The newsletter not only provides subscribers with investing ideas that produce incredibly high dividend yields, but the kicker is that these high-yield investments have also consistently outperformed the major market averages. (Learn More)

About Carla Pasternak

Editor of StreetAuthority.com's High-Yield Investing newsletter since its inception in May 2004, Carla Pasternak draws on a variety of financial backgrounds to make profitable calls on income-generating stocks for her readers.

Carla has been employed in the investment industry for more than two decades. In addition to her work as a writer for several nationally recognized financial publishers, her previous experience includes a position as president of a well-respected investor relations firm. She has also been writing shareholder reports for public companies since 1980.

A highly successful investment analyst, Carla specializes in high-yield, income-paying stocks. In that pursuit, she's always mindful to select companies that not only pay rich dividends, but that also deliver strong long-term capital gains. Furthermore, Carla's experience in writing SEC filings gives her the added insight required for her to truly understand a company's current and future financial health.

On the educational front, Carla holds BA, MA, MBA and Ph.D. degrees. When she's not watching the market, she's teaching business courses at the college level and managing millions of dollars in portfolio assets.

To learn more about Carla Pasternak's premium income investing newsletter -- High-Yield Investing -- please visit this link.