How to Manage an Asset Allocation Fund

Every investor knows diversification is important. Investing in more than one type of stock is wise because it gives your portfolio a good balance of high- and low-risk shares. One way to create instant diversification for your portfolio is by investing in an asset allocation fund. It's helpful to learn the basics of asset allocation and find out how you can invest in and manage these types of funds.

Instructions

Difficulty: Challenging

Things You’ll Need:

• Capital
• Financial plan
• Financial advisor
• Internet access
• Asset allocation fund quotes

Understanding Your Asset Allocation Fund

1. Find out what asset allocation funds are. Asset allocation funds invest in a variety of assets like precious metals, bonds, luxury collectibles and cash.
2. Determine the goal of these types of investments. The objective of asset allocation funds are similar to those of balanced funds in that they both seek to provide consistent returns through lower-risk investments.
3. Learn how these funds work and how to manage them. Asset allocation funds do not require investors to hold a specific percentage of asset classes. Fund managers have the freedom to switch between asset classes to provide investors with maximum returns as the business cycle shifts.

Buying Into an Asset Allocation Fund

4. Study the market to determine which mix of investments would best suit your financial goals. You can choose more aggressive funds if you're closer to retirement age, or more conservative funds if you have at least 15 years left.
5. Determine how much risk you're willing to handle in your investments. Certain assets, such as real estate, may prove to fluctuate more than other assets, like gold.
6. Compare the past performance of the fund you're interested in with similar asset allocation funds. This will help you feel more confident in your decision to buy shares in the fund.
7. Check into buying requirements when you've found the fund that suits your needs. Some funds can be purchased directly, but it may be less costly to purchase your shares through a fund supermarket.

Tips & Warnings

• If at all possible, purchase directly from the fund. There's a high probability you'll save on hefty broker fees.
• Remember that all investments come with some measure of risk. Even though asset allocation funds come with a high level of diversification, this doesn't mean that they are risk-free investments.
• Choose and manage your funds carefully. Don't over- or under-balance your assets. Select a fund that has a good mix of assets for better diversification.