What are Asset Allocation Funds?

Asset allocation funds come in two forms, target date funds and balanced funds. Each one can be more suitable to different investors. But what are these funds?

Well there are 3 different asset types stocks, bonds, and cash equivalents. Out of those stocks typically outperform the rest, but they are also more volatile. An allocation fund attempts to gain the best of both worlds by investing in all asset classes.

There are two major types of funds that help you do that.

1. Balanced Funds

Balanced funds simply divide the portfolio by the different securities. Usually they are broken down with 60% in stocks and 40% in bonds. This helps to benefit from stocks while at the same time lessen the volatility.

2. Target Date Funds

These funds work a little differently. While they also split up their investments into the different asset classes, the amount invested in each class can vary. For instance when an investor is young the funds will be more risky, as that individual grows older it invest less in stocks and more in safer investments.

These funds might also change the ratio in different classes during different market conditions, for instance if we are in a bears market it might invest more heavily in bonds to escape the volatility in the stock market.

Return From Asset Allocation Funds to Types of Mutual Funds