Asset allocation funds are mutual funds whose managers believe they can improve returns and/or reduce risk by switching back and forth among stocks, bonds and cash. Many in the investment industry promote these funds as a simple and profitable way to assemble a diversified portfolio.
Asset allocation managers often use a so-called “black box,” a computer program that makes trading decisions based on a pre-selected set of rules for interpreting financial statistics. Computer modelling gives this investment approach the appearance of being scientific and relatively foolproof. Yet it is just as likely to detract from a portfolio’s long-term return as it is to add to it.
Asset allocation programs are like hindsight; they work great when they are applied to the past, since their creators can tweak the rules to match what actually happened. They are far less effective at extracting profit in real time. However, they always work great at jacking up a fund’s expenses, because of the commissions their trading generates.
Asset allocation funds can shift their portfolio allocations between stocks, bonds and cash in order to capitalize on perceived investment opportunities in any one of those classes. For example, if the managers are convinced the bond market is depressed and due for an upswing, they may invest heavily in fixed-income investments for a few months to take advantage of the change.
Learn more about asset allocation funds and other risky strategies by following TSI Network. Build a sound portfolio byusing our three-part Successful Investor strategy:
Learn how to look for blue chip companies that are likely to pay off if business and the stock market are good, but that won’t hurt you too much during those inevitable periods when business or the markets are bad. Download Canadian Blue Chip Stocks: Bank of Nova Scotia Stock, CP Rail Stock, CN Rail Stock and More.
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Here’s a look at the pros and cons of robo-advisors
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Asset allocation funds work great in hindsight—but they’re far less effective at forecasting the future.
Traditionally, asset-allocation funds adjust their portfolio weightings between stocks, bonds and cash in order to capitalize on perceived shorter-term investment opportunities in any one of those classes. For example, if the… Read More
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The growth of passive investing has accelerated with the expansion of ETF investments. Here’s more on that trend, plus a look at other passive investments you should know about
Passive management is also known as indexing. That’s in contrast to active management.
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Fund providers in Canada and the U.S. continue to actively introduce new ETFs. This month we highlight three recent additions.
Bank of Montreal (BMO) recently launched three asset allocation ETFs that invest in other BMO ETFs.
Each of the three ETFs acts as “fund of funds,” with its… Read More
A: The Vanguard Conservative ETF Portfolio, $24.04, symbol VCNS on Toronto, holds roughly 40% of its assets in Vanguard stock ETFs and 60% in bond ETFs. This $117.8 million ETF started up on January 25, 2018, and has a 0.22% MER. The ETF yields 3.1%.
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Learn everything you need to know in 'The ETF Investor's Handbook' FREE Special Report from The Successful Investor.
ETFs Guide for Canadian Investors: Find the best way to invest in ETFs with low fees, low risk & high satisfaction.
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