Now that you have a general understanding on how to figure out your asset allocation, you may be wondering, "what types of funds do I invest in?" I don't have an exact answer to that question. The reason being is that each individual situation is highly unique and will likely require different funds. Not to mention this question is similar in nature to "what is the best way to cook bbq ribs?" Answers are highly dependent on who you ask and there is no 100% correct answer.
I want to take some time to describe how to read the document that decribes a mutual fund's objective, past returns, costs, and other insightful information know as a prospectus.
There is a whole lot of detail in a prospectus but you can garner a lot of information by focusing on certain parts of the document.
Product Summary - this provides you some background on the fund, it's objective, and how it attempts to go about reaching that objective.
Expense Ratio - this is how much it costs to be invested in the fund. While this may not be the only indicator of whether to invest in a fund, expensive funds are not always the better choice.
Fund specific fees - funds can have an assortment of fees in addition to an expense ratio. Be sure you identify them.
Past performance - anyone who has read the fine print knows that past performance is not always indicative of future performance but at the same time it can give you some sort of understanding of what you can expect in terms of volatility and possible returns. It is a data point to consider.
Minumum Investment - some funds have minimums which need to be taken into account if you only have a limited amount to invest.
Portfolio composition - this can give you a wealth of information on how many and what kind of securities are included in a fund. For stocks, it is a good idea to understand what investment style the fund is (growth, blend, or value) as well as the makeup of the market capitalization of the company's included (meaning how big the companies are). For bonds,
Sectors - this is a bit more advanced but understanding these can give you an idea on if you are more heavily weighted towards a certain part of the market. Being diversified across different types of business allows you to spread risk but finding a sector that has more relative value
Dividend Income - this is important to know as this will give you an idea if you can expect income from the fund. This should especially be taken into account if the account is not tax advantaged.
It is easy to get intimidated by the vast amount of information in a prospectus but I think this gives a good starting point to get a general idea on what a fund can provide for you.