An Asset Allocation Fund Guide
As far as funds go, Asset Allocation Funds can be summed up in one word. Versatility. Most balanced funds are going to keep a pretty fixed combination of stocks and bond, for example 60 percent stocks and 40 percent bonds. However an asset allocation fund can move money between both to capitalize on whatever current market conditions exist. Some funds will take money from stocks and invest in bonds, or vice versa, if they believe a better return can be had there. It provides a flexibility that other funds may not be able to provide due to rigid interior rules.
Choosing the right fund depends on several factors including your age, how long you intend to invest, how much you want to invest, and how much risk you would like to take on. Asset allocation funds are a single mutual fund that attempts to accomplish financial goals by itself. Investors who utilize this financial vehicle will obtain truly diverse holdings along with consistent returns, to prevent investing in several different funds at once. While it seems as though you are essentially putting all of your eggs in one basket so to speak, this technique of investing has grown popular in the bull market and has shown to perform similar to balanced funds over a five-year period.
Each fund that does this will vary in composition and opportunity. Be sure to get a prospectus from your fund broker or financial adviser about whatever fund you are considering. It will show you their objective goals, how they buy and sell investments, and some snap shots of their previous years returns. Use this information to make good decisions about your money keeping in mind that what worked last year for them might not work this year! Markets change and your portfolio should as well to adjust for current and future needs.
As stated above, another fund type you can certainly look into is balanced funds but funds like a life-cycle or target date fund. These often will be more conservative in the fact that they start out with a mix of higher risk stocks, bonds and cash but move into more conservative investments as you get older or get closer to the fund target date. The idea being that the younger you are the more you can risk because you have a whole working life to make up potential losses. The older you are the less time you have to earn back losses.
Whatever you choose, choose wisely. It is a must to get fund information and an up to date prospectus. Read through them and do your homework. Money does not make itself! Seek out an adviser, ask questions and you will certainly come out on top.
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