Mutual funds with the best asset allocation are those that have enough exposure to different types of securities and regions to generate desired returns for investors. This asset allocation picture may change in different market environments, and often it requires investing in more than one mutual fund to achieve proper diversification. Still, there are individual funds that offer investors sufficient asset allocation to achieve their financial goals.
Mutual funds are investment portfolios with combined assets of many different investors. Professional investment managers oversee these funds, performing research as well as buying and selling securities to meet the investment strategy of the fund. An investor can get a sense of the type of asset allocation -- or exposure to investment categories such as stocks and bonds -- a mutual fund will have by reading a prospectus. This is a formal, public document filed with a regulatory agency in the region.
Investors can gain access to asset allocation by investing in a balanced fund. These mutual funds invest in both stocks and bonds. Investors are exposed to risk and volatility in the stock investments, while bonds can provide some protection against inflation and other market risks. According to "SmartMoney" magazine, this stock and bond combination grants investors consistent but modest profits. Most balanced funds have a mixture of 60 percent stocks and 40 percent bonds, although there are variations on that formula.
Target Date Fund
Target date funds are another type of mutual fund that provide investors with asset allocation. Assets in a target date fund change as an investor gets closer to retirement. The composition of the fund typically becomes less risky as the investor ages so that the fund is less likely to lose any value. These mutual funds include the year of retirement in the fund name, according to the "Pittsburgh Tribune-Review." An investor who will reach retirement age by 2020 or later can easily select the appropriate fund.
Quantifying the risk in any mutual fund regardless of asset allocation can be difficult. One way to protect an investment is to not only review the historical investment performance of a fund, but to research the track record of the portfolio manager as well, according to "Forbes" magazine. Although fund performance may appear to be stable, a fund manager may have had poor performance at a previous firm that a current employer will clearly not publicize.
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