Investing in an Asset Allocation Fund

Asset allocation funds vary from a balanced fund in one way... versatility. While balanced funds keep a set mix of stocks and bonds to keep up with the market (typically 60 percent stocks and 40 percent bonds), the allocation fund varies in the amount it keeps in both. The Vanguard Asset Allocation Fund, for example, will move money between S&P 500 stock index fund, treasury bonds, as well as money market securities. The factors determining where invested money will be placed depends entirely on the current market.

Choosing the right fund depends on several factors including your age, how long you intend to invest, how much you want to invest, and how much risk you would like to take on. Asset allocation funds are a single mutual fund that attempts to accomplish financial goals by itself. Investors who utilize this financial vehicle will obtain truly diverse holdings along with consistent returns, to prevent investing in several different funds at once. While it seems as though you are essentially putting all of your eggs in one basket so to speak, this technique of investing has grown popular in the bull market and has shown to perform similar to balanced funds over a five-year period.

Each fund in the allocation of assets varies in composition and opportunities. While the composition of the FMC Select Fund and PaineWebber Tactical Allocation funds performed far above the average, (57 percent return between 2001 and 2006) within different economies, different compositions will prosper. For conservative investors, you may want to stick to balanced funds, which will not make you rich quick but will build your savings over time.

Life-cycle and target-date funds are a form of balanced fund that is often used as a retirement vehicle. These funds have a mixture of stocks, bonds and cash securities that start with higher risks for return and will decrease in risk as you grow older. As most know, at a younger age it is recommended to be risky, but once you reach ages near retirement, losing everything is not an option.

No matter which investment vehicle you choose for the best potential, be sure to invest wisely. Always consult a financial and mutual fund expert if you are unsure of market trends and the right time to invest. While you may not become a millionaire overnight, you will be able to live a comfortable and certain retirement, in an uncertain decade.