When selecting mutual funds for your investment portfolio there is one attribute of your portfolio you should consider and that is asset allocation. Here are some ways to think of asset allocation and the various types.
Conservative Asset Allocation – This type of allocation puts you in more conservative funds for your investment style. When you decide to invest in mutual funds that make up this asset class, you’re frame of mind should be:
- You DON’T feel comfortable investing in high risk investments to possible gain higher returns than average.
- Your investment objectives for this asset allocation might include larger investments bonds and cash.
- You might not be interested in investing in stock equities.
- You’re interested in preserving capital.
Moderate Asset Allocation – This type of allocation puts you in more conservative funds for your investment style. When you decide to invest in mutual funds that make up this asset class, you’re frame of mind should be:
- You’re interested in investing in assets that have lower risk than what’s described in the aggressive asset allocation but higher than what’s described in the conservative asset allocation.
- The moderate portfolio might contain a mixture of income and capital gains investments.
Aggressive Asset Allocation – This type of allocation puts you in the most aggressive funds for your investment style. When you decide to invest in mutual funds that make up this asset class, you’re frame of mind should be:
- You feel comfortable investing in high risk investments to possible gain higher returns than average.
- You’re allowing more than 15 years to accomplish your investment objectives.
- Your investment objectives for this asset allocation might include larger investments in small company funds.
- Aggressive stock funds would also be considered for this asset allocation.
For an example list of mutual funds that make up this type of asset allocation read Aggressive Asset Allocation.
While asset allocations might include some of each other, e.g. – bonds, stocks, cash, etc, it’s the percentage of those asset classes mixed together that make up asset allocation. When coming up with the right asset allocation for you, it’s about answering questions like, “How well do you want to sleep at night?” and “How best can you protect your investments as you move closer to retirement?”.