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:
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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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The topic of how to pick the best long-term mutual funds came up at the office recently. About a month ago, a friend’s son was considering… Read More
25 investment terms every investor should know—from Aggressive Investing to Warren Buffett
If you’re an investor, you may not know all of the investment terms you come across. Here’s a breakdown of some of the most common ones.
Aggressive Investing
Aggressive investing is a style… Read More
Asset allocation funds aim to improve returns and/or reduce risk by switching back and forth among stocks, bonds and cash. We think they are likely to hurt your portfolio returns rather than enhance them.
Asset allocation funds are mutual funds whose managers believe they can… Read More
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… Read More
Many people in the investment industry promote asset allocation funds as a simple and profitable way to assemble a diversified portfolio of stocks, bonds and cash equivalents.
But as is so often the case, the product rarely lives up to the hype.
How asset allocation funds actually… Read More
Here’s the text of the quarterly letter I sent to our Portfolio Management clients in mid-August:
“Many investors are fearful today, due to a variety of issues — the U.S. budget standoff, the debt crisis in Greece and elsewhere in Europe, high joblessness around the… Read More
Many investors see asset allocation funds as an easy and profitable way to diversify between stocks, bonds and cash equivalents.
What you get when you buy units of asset allocation funds
Asset allocation funds are mutual funds that can shift their portfolio allocations between stocks, bonds and… Read More
This time of year, you’ll often hear discussions about the proper “asset allocation”, or the mix of stocks, bonds and cash that you should hold in your portfolio at various stages of life. A Successful Investor Wealth Management client once asked a related question that… Read More
Many investors buy units of asset allocation mutual funds because they think these funds provide an easy and profitable way to diversify between stocks, bonds and cash equivalents.
How asset allocation funds work
Asset allocation funds are mutual funds that can shift their portfolio allocations between… Read More
Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' FREE Special Report from The Successful Investor.
How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.
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