Choosing a Portfolio
Interested in investing in an asset allocation fund? Generally, there are two ways to choose:
Risk-Based Portfolios: Choose the fund based on the amount of risk you want to take. Risk-based portfolios have a preset allocation and are periodically rebalanced to keep that allocation and risk level consistent.
Target-Date Portfolios: Choose the portfolio by the approximate year you will need the money. Each year, the asset mix and weightings are adjusted to become more conservative as the target-date approaches. With target-date portfolios, the principal value of the investment is not guaranteed at any time, including at the target date.
Understanding Asset Allocation Performance and Risk
The performance of an asset allocation portfolio depends on how its underlying funds perform. Those funds are subject to market volatility and, depending on the types of assets in which they invest, may be subject to additional risks that come with investing in specific market sectors or securities.
If the underlying fund also includes international securities, the portfolio may also experience currency and exchange rate risks. As with any investment, the value of the asset allocation fund's shares will fluctuate and may fall below your original investment.
The Bottom Line
Managing your investments, including diversifying your holdings, can be tough to tackle on your own. Investing in an asset allocation fund can give you the benefit of a balanced portfolio that's managed by professional money managers, in one convenient fund choice. This investment may help you manage risk and potentially weather the markets' natural ups and downs.