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.
The bond market outlook can provide a false sense of security. In fact, it puts investors at risk of capital losses if inflation or interest rates rise.
The bond market outlook had a lot of investor appeal in the turbulent years of the 1930s and 1940s… Read More
Investing in bonds: Bonds are unlikely to perform as well in the next few years as they have in the past, mainly because interest rates will likely hold steady or rise further. (Bond prices and interest rates are inversely linked. When interest rates go up,… Read More
A: The Vanguard Conservative ETF Portfolio, $24.70, symbol VCNS on Toronto, holds roughly 40% of its assets in Vanguard stock ETFs and 60% in bond ETFs. This $27 million ETF started up on January 25, 2018, and has a 0.22% MER.
The Vanguard Balanced ETF Portfolio,… Read More
Here’s the text of the most-recent letter I sent to our Portfolio Management clients in late January:
“Many investors now feel stock prices are too high, and offer little potential for capital gain, based on various market indicators. However, negative views like this have been common… Read More
What are index funds and what are the main benefits (and risks) for investors?
What are index funds? Index funds are mutual funds or exchange-traded funds (ETFs) that invest to equal the performance of a market index.
Here are the types of index funds to be aware… Read More
Know the ins and outs that a successful investment funds manager uses to maximize gains
Active management occurs when an investment funds manager picks stocks, rather than simply aiming to match benchmark indexes. To do this, they use research, forecasts, experience and critical judgement to make… Read More
Are you aware of what goes into managing investment funds—and the fees that go along with it?
It’s important to know the ins and outs of the different styles (and fees) in managing investment funds.
Below we share information on five types of funds that investors find… Read More
A: We have moved away from recommending mutual funds in favour of lower-fee exchange-traded funds (ETFs).
However, some mutual funds are okay to hold if you own them.
The Fidelity Income Allocation Fund is a tactical asset allocation fund. These funds shift their portfolio allocations between stocks,… Read More
Long-term investment stocks to energize your investment gains
Most successful investors will hold a blend of growth stocks and some value stocks at any given time, depending on where they discover the best opportunities. Value stocks are stocks trading lower than their fundamentals suggest. They are… Read More
A: We have moved away from recommending mutual funds in favour of lower-fee exchange-traded funds (ETFs). However, the best mutual funds are okay to hold if you already own them.
The Fidelity Income Allocation Fund is a tactical asset allocation fund. As such, it shifts its… Read More
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