Definition
The term asset allocation fund refers to a portfolio of equities, bonds, and cash equivalents in a proportion that fulfills a specific investment objective. The allocation of assets in these funds can remain fixed or they may vary over time to fulfill its objective.
Explanation
Asset allocation funds offer individuals the ability to select from a variety of investment objectives that are defined by the proportion of assets allocated to each asset type. For example, an asset allocation fund's investment objective could be capital appreciation, and a large portion of the fund's assets would be allocated to equities. Blend funds are just one type of asset allocation fund, and typically allocate 60% of assets to equities and 40% to bonds.
The investment objective of an asset allocation fund will not only determine the portfolio's mix of assets, but also whether or not they vary over time. A blend fund's allocation of assets to each investment type will usually remain fixed over time. Target date funds, also known as life cycle funds, typically change the allocation of assets over time. For example, a life cycle fund might allocate a larger proportion of assets to stocks in the near term, moving towards a larger proportion of assets in fixed income securities over time. In doing so, these funds offer the investor the opportunity to enjoy capital appreciation in the near term and income in the future.
Since asset allocation funds can vary a great deal in terms of investment objective, investors choosing these funds will have a variety of risk tolerance scores.
Related Terms
The term active fund refers to an investment strategy that relies on forecasts, research, and proprietary models when selecting securities to buy or sell. The objective of active funds is to find securities that are currently undervalued and will outperform the market in the near term.
Moneyzine EditorNovember 6th, 2024
The term fund of funds refers to a portfolio of mutual funds held by a single mutual fund. The objective of a fund of funds is to provide investors with diversification within a specific asset allocation framework.Moneyzine EditorJanuary 18th, 2024- The term passive fund refers to a portfolio of securities that are thought to mirror a market index such as the S&P 500. The objective of passive funds is to find securities that will provide investors with a return equal to the index that the fund's managers are attempting to replicate.Moneyzine EditorNovember 6th, 2024
The term go-go fund refers to a portfolio of high-risk securities that attempts to provide investors with above average returns. While the stated objective of a go-go mutual fund is to provide individuals with higher than average returns, there is considerable risk associated with these investments too.Moneyzine EditorNovember 6th, 2024
