The Asset Allocation Fund: One Stop Shopping
Written by Jonathan Silvers   
Sunday, 06 June 2010 07:16
Asset allocation funds vary from a balanced fund in one way... versatility. While balanced funds keep a set mix of stocks and bonds to keep up with the market (typically 60 percent stocks and 40 percent bonds), the allocation fund varies in the amount it keeps in both. The Vanguard Asset Allocation Fund, for example, will move money between S&P 500 stock index fund, treasury bonds, as well as money market securities. The factors determining where invested money will be placed depends entirely on the current market.
by JonathanSilvers


Asset allocation funds vary from a balanced fund in one way... versatility. While balanced funds keep a set mix of stocks and bonds to keep up with the market (typically 60 percent stocks and 40 percent bonds), the allocation fund varies in the amount it keeps in both. The Vanguard Asset Allocation Fund, for example, will move money between S&P 500 stock index fund, treasury bonds, as well as money market securities. The factors determining where invested money will be placed depends entirely on the current market.

What will determine what kind of fund is for you is how much you can invest, how much you have liquid after you invest, how much risk you can handle, your investment time frame and your age. When considering these types of funds, the benefit is that they are one investment that can perform like several. By purchasing shares in one fund, the investor is essentially investing in several types of classes because of the internal diversification. This may help them obtain a more consistent return curve. The idea however of investing in one fund seems a bit like putting all your eggs in one basket. If you thought this, you are certainly right. However, an allocation fund may be a great way to round out ones portfolio rather than sell the bad stuff to buy the good stuff. The fund managers watch the markets and see where to move your money.

Each fund in the allocation of assets varies in composition and opportunities. While the composition of the FMC Select Fund and PaineWebber Tactical Allocation funds performed far above the average, (57 percent return between 2001 and 2006) within different economies, different compositions will prosper. For conservative investors, you may want to stick to balanced funds, which will not make you rich quick but will build your savings over time.

Life-cycle and target-date funds are a form of balanced fund that is often used as a retirement vehicle. These funds have a mixture of stocks, bonds and cash securities that start with higher risks for return and will decrease in risk as you grow older. As most know, at a younger age it is recommended to be risky, but once you reach ages near retirement, losing everything is not an option.

So however you decide to invest, decide wisely. That means do your homework! Seek advice but do not just arbitrarily accept that advice. It is your money. Don't do anything you feel uncomfortable with. Look into whatever is suggested to you, weigh the pros and cons, and you will come out on top.

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Want to find out more about asset allocation funds, then visit Jonathan Silvers's site on how to choose the best asset allocation fund for your needs.