When it comes to mutual funds, there are three main types of assets into which your money can be invested. These are stocks, bonds, and cash equivalents, generally securities. The term asset allocation mutual fund refers to a fund that has a portfolio made up of these three main assets in variable or fixed quantities. They are a popular investment and can be customized to create a strong retirement portfolio.
How They Work
There are a few types of asset allocation mutual funds. Some remain steady over time and keep your money invested at the same proportions no matter what is going on with the market. Others are designed to vary with market trends and move around the percentage of the assets as needed. Each type of fund can achieve a particular goal for the investor.
Like all mutual funds, asset allocation mutual funds spread the risk of your investment across a variety of investments, which means a lower risk overall. The different types of asset allocation mutual funds allow you to adapt to your financial needs and create a blend of assets that will give you the level of risk as well as the return you are seeking.
Who Should Invest
Asset allocation mutual funds are a great choice for just about any investor. The main thing to consider when deciding what type of investment to make is your long term goals for your money and of course what sort of risk you can tolerate. Mutual funds tend to be a generally low risk investment and do not require an in-depth knowledge of the market, which makes them a popular choice for anyone who doesn’t want to spend a great deal of time following markets and moving money around.
An asset allocation mutual fund can help to bolster your IRAs and is usually a good investment choice when you have met your contribution limits for the year and still have money you would like to place in a low risk investment for retirement. They can be designed to start out with a higher risk level for increased return and then slowly reduce the risk over time so that you are not in danger of losing your investment money right when you need it—at retirement.
Your financial advisor is the best person to help you make sense of the options for investments, and to explore your financial situation and goals to determine if an asset allocation mutual fund is a good choice for you.