Do you have trouble creating a portfolio with a great mix of stocks and bonds—and keeping it on track? Many investors choose a particular kind of mutual fund that does this for them—and provides lower volatility than the overall stock market. These asset-allocation funds, which mix various percentages of stocks with US Treasury securities and some cash, come in a much greater variety than in the past.
For instance, Fidelity, which in the early 1990s had three “Asset Manager” funds—a conservative one…a moderate one…and an aggressive one—now offers seven, ranging from 20% to 85% stocks. Several firms have added “global” allocation funds that include foreign stocks and bonds. And several offer “tactical” allocation funds that allow managers to shift the stock/bond mix to whatever they want, although this type is too new and unproved to recommend. To decide which, if any, allocation fund is right for you, ask…
Can it be my only investment? A good asset-allocation fund typically is diversified enough to use for your entire portfolio if you want.
How much short-term volatility can I stomach? Historically, funds with 20% in stocks have dropped no more than 10%…funds with 50% in stocks lose as much as 23%…funds with 80% in stocks, 35%.
Top-rated funds include…
Aggressive: T. Rowe Price Personal Strategy Growth (TRSGX)…Vanguard LifeStrategy Growth (VASGX).
Moderate: Dodge & Cox Balanced (DODBX)…FPA Crescent (FPACX).
Conservative: Berwyn Income (BERIX)…Vanguard Wellesley Income (VWINX).
Global: BlackRock Global Allocation (MDLOX)…American Funds Global Balanced (GBLAX).