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Friday, November 6, 2009

Great Things About Asset Allocation Funds

Asset allocation funds can be a great way to approach investing because they allow you to benefit from the movements of stocks, while at the same time avoid the volatility they come with.

They do this by investing in other asset classes such as bonds as well as stocks. Some of the major benefits are.

1. Escaping volatility

Stocks can be very volatile and that can be very risky at times. So if you just buy a portfolio of stocks and the market crashes you could lose a large chunk of your portfolio. But if you had a diversified portfolio between both stocks and bonds a market crash might not affect you as much.
Bonds can be used to help you get through a bears market.

2. Diversified

How many times have you heard about diversification? Well that is because it works for a long term portfolio. The first thing you need to consider is risk so if you only invest in 1 asset class you are going to hold a high amount of risk.

If all you have are stocks and they start falling all of a sudden your portfolio is going to go down with it. This can be used for bonds too. A more diversified approach gives you a better long term outlook.

3. Some Funds Can Switch

Some Asset Allocation funds can switch from investing primarily in 1 asset class to another. So if stocks start outperforming bonds you can switch into being more heavenly waited on invest in stocks which can help you benefit from changes in any market.

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