What Is an Asset Allocation Fund?

An asset allocation fund is a fund that provides investors with a diversified portfolio of investments across various asset classes. The asset allocation of the fund can be fixed or variable among a mix of asset classes, meaning that it may be held to fiꦜxed percentages of asset♎ classes or allowed to go overweight on some depending on market conditions.

Popular asset categories for asset allocation funds include stocks, bonds, and 澳洲幸运5官方开奖结果体彩网:cash equivalents that may also be sܫpread out geographically for additional diversification.

Understanding an Asset Allocation Fund

Asset allocation funds were developed from 澳洲幸运5官方开奖结果体彩网:modern portfolio theory. Modern portfolio theory shows that investors can achieve optimal returns by investing in a diversified portfolio of investments included in an 澳洲幸运5官方开奖结果体彩网:efficient frontier.

The standard applications of modern portfolio theory investing include an efficient frontier of stocks, bonds, and cash equivalents. Furthermore, modern portfolio theory outlines how a portfolio can vary its asset mix to tailor to the 澳洲幸运5官方开奖结果体彩网:risk tolerance of the investor.

Types of Asset Allocation Funds

Asset allocation funds provide a simplified application of modern portfolio theory with varying allocations and combinations of assets ♓for investors.

One of the most common types of asset allocation funds is a 澳洲幸运5官方开奖结果体彩网:balanced fund. A balanced fund implies a balanced allocation of equities and 澳洲幸运5官方开奖结果体彩网:fixed income, such as 60% stocks and 40ܫ% bonds. Investors will find numerous funds deploying the 60/40 mix as it 𓃲has become a popular standardized strategy for investors seeking broad market diversification.

Asset allocation funds also offer varying levels of diversification based on risk tolerance. Investo♏rs seeking additional investing categories beyond just 60/40 will find many options, including conservative allocation funds, moderate allocation funds, and aggressive alloca­tion funds.

Life-cycle or 澳洲幸运5官方开奖结果体彩网:target-date funds, usually used in 澳洲幸运5官方开奖结果体彩网:retirement planning, are also considered a type of asset allocation fund. These funds ✅are managed with a targeted mix of asset classes that start ouꦑt with a higher risk-return position and gradually become less risky as the fund nears its targeted utilization date.

After determining a targeted asset allocation, funds can manage their investment selection in a number of ways. Some funds may choose to invest in a variety of 澳洲幸运5官方开奖结果体彩网:exchange traded funds (ETFs) to represent different market exposures. Other funds may take a more active approach by using 澳洲幸运5官方开奖结果体彩网:fundamental analysis to select top-performing ꦇsecurities in🦩 each asset class.

Overall, most funds will activ🌃ely monitor and allocate or rebalance securities in response to evolving market conditions and economic environments.

Popular Asset Allocation Funds

Below are examples of some of th🐠e investment indu♛stry’s top asset allocation funds.

• The iShares Core Aggressive Allocation ETF (AOA): The iShares Core Aggressive Allocation ETF is a 澳洲幸运5官方开奖结果体彩网:tracker fund that seeks to replicate the performance of the S&P Target Risk Aggressive Index. The fund invests in targeted ETFs that seek to replicate the Index. The Index is heavily weighted towards equities, targeting investors with a high risk tolerance.
• The iShares Core Conservative Allocation ETF (AOK): The iShares Core Conservative Allocation ETF is a tracker fund that seeks to replicate the performance of the S&P Target Risk Conservative Index. The fund invests in ETFs that seek to replicate the Index. The Index is heavily weighted toward fixed income, targeting investors with a more conservative risk tolerance.
• The Vanguard Balanced Index (VBIAX): Investors seeking asset allocation funds will find a number of options with Vanguard. The firm’s Vanguard Balanced Index fund invests approximately 60% in stocks and 40% in bonds. Its holdings seek to track two indexes, the CRSP US Total Market Index and the Bloomberg U.S. Aggregate Float Adjusted Bond Index.