Funds that implement target asset allocations

October 22 , 2020 |4 Comments

Funds That Implement Target Asset Allocations

An asset-allocation fund or a balanced fund is a mutual fund that holds multiple asset classes . Typically these funds hold a stock component; a bond component, and in some instances, a cash component. Many balanced funds maintain a fixed asset allocation; some pursue a variable allocation policy, changing asset weightings according to market conditions. Target date funds are balanced funds that gradually change asset class weightings in harmony with an investor's supposed changing need for a lower risk profile over time.

These funds attempt to provide investors with portfolio structures that address an investor's age, risk appetite and investment objectives with an appropriate apportionment of asset classes. However, critics of this approach point out that arriving at a standardized solution for allocating portfolio assets is problematic because individual investors require individual solutions.

Target Date Retirement Funds Automatic Asset Allocation

No discussion of asset allocation would be complete without mentioning target- date retirement funds and whether they are good choices for your investment A target-date retirement fund (also known as a lifecycle fund) is a form of mutual fund that invests in a combination of stocks and bonds, gradually shifting its asset allocation from stocks to bonds as the target date approaches, and beyond. For instance, a target-date fund intended for people retiring

in 2055 might have 90% of its assets in stocks and 10% in bonds, while a fund intended for 2020 retirees may have a 50-50 mix. The exact mix depends on the particular fund company, but the idea is the same. At The Motley Fool, we're obviously in favor of choosing individual stocks, as long as you have the time and desire to properly research investments. Having said that, if you prefer

a hands-off approach to investing and don't want to worry about shifting your asset allocation as you get older, a low-cost target date fund can be a good option. Here's a thorough discussion about target-date funds if you're interested.

Asset Allocation Shortcuts Target Date Funds And Robo Advisors

Determining the right asset allocation you need shouldn’t be a difficult process, but it does require periodic maintenance. If you’d prefer to leave management of asset allocation to professionals, consider investing in target date funds or with robo-advisors. Target date funds and robo-advisors typically offer easy ways to invest in diversified portfolios of mutual funds and ETFs. They automatically rebalance your holdings to maintain your desired level of risk and rebalance them as you approach the date when

you need access to your money. Most often, target-date funds are designed for retirement, but there are also other kinds of target date funds, like funds for 529 college savings accounts timed for when a child will mostly likely be going to college. Robo-advisors take the automation of your asset allocation even further. When you sign up for a robo-advisor, the platform asks you a series of questions about your time horizon and your risk tolerance. The

platform then automatically tailors the asset allocation of your portfolio to your goals with no further input needed. While convenient, neither approach is typically free. Fees and expenses associated with target date funds are generally higher than they would be if you invested in the funds they invest in yourself. The same is true of robo- advisors, which typically charge annual maintenance fees of 0.25% to 0.50%. But if you would prefer a hands-off approach, you may

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What S The Best Asset Allocation For Target Date Funds

When considering the best target date funds for you, it’s important to note that different funds are designed with unique investment strategies in mind, and that can lead to different desired outcomes. Traditional target date funds typically follow set asset allocations or might be constructed to seek outperformance of certain benchmarks (like the S&P Target Date Indices, for example). These types of funds tend to be on the more conservative side and contribute to a balanced portfolio. On the other hand, goals-based target

date funds aim to achieve specific outcomes and may be more likely to be associated with growth and income generation. In practice, a goals-based investment strategy means the investor customizes the plan — such as managing risk, broadening the scope of investments or considering alternative investments — to help increase their chances of reaching their retirement goal. While the consistent goal of all retirement plans is to achieve a sustainable retirement income, investment needs can change, and a portfolio may need to

change accordingly. * Growth portfolios aim to increase the value of retirement savings by favoring stocks. * Balanced portfolios typically focus on seeking moderate levels of return and risk by investing in a fairly even split between stocks and bonds. * Income portfolios are designed to offer long-term sustainability through a generally conservative strategy of bonds, mortgage-backed securities, stocks and other investments that pay interest or dividends.

Setting A Target Asset Allocation Range In Your Self Managed Super Fund

Many investment strategies also nominate a targeted asset allocation by asset class, as well as risk tolerances. As an example, a target of 40% invested in Australian shares, and a tolerance of +/- 20% performance. This simply means the trustee sets a target range for what they would like to achieve in terms of performance, without adjusting the investments unless it falls outside of this range. In the above example, if the value of Australian shares across the SMSF’s portfolio stayed within 20% – 60% there would be no change required. Where some SMSFs get it wrong is to set a target, but allowing the tolerance to be too broad (between 0% and 100%). This usually isn’t a sound investment strategy as there is no real goal that the investment strategy can be measured

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Funds that implement target asset allocations