Asset-Allocation Funds

Petko Bahovski

Asset-allocation funds typically invest in several asset classes such as stocks, bonds and money-market funds, giving you portfolio diversification and easy-to-manage risk-management tools in a simple and self-controlled investment approach.

There are several types of asset-allocation funds. The most common are target-date funds, target-allocation funds and target-income funds. Each of these follows a specific asset-allocation investment strategy.

These funds are expected to provide disciplined and consistent asset allocation over time, and are intended to help meet your long-term needs for income and capital growth.

The most peculiar thing about such funds is the asset-allocation strategy they follow. Thus, in the next few sections we will examine more closely the asset-allocation strategy that those funds follow, rather than the individual asset classes that the funds invest in, as those asset classes have already been covered.

Target-date funds automatically adjust the asset-class mix of equities, bonds and money-market securities according to a selected timeframe. This asset mix initially has higher weight on equities, and gradually changes to favour higher weight