Asset allocation funds are mutual funds whose managers believe they can improve returns and/or reduce risk by switching back and forth among stocks, bonds and cash. Many in the investment industry promote these funds as a simple and profitable way to assemble a diversified portfolio.
Asset allocation managers often use a so-called “black box,” a computer program that makes trading decisions based on a pre-selected set of rules for interpreting financial statistics. Computer modelling gives this investment approach the appearance of being scientific and relatively foolproof. Yet it is just as likely to detract from a portfolio’s long-term return as it is to add to it.
Asset allocation programs are like hindsight; they work great when they are applied to the past, since their creators can tweak the rules to match what actually happened. They are far less effective at extracting profit in real time. However, they always work great at jacking up a fund’s expenses, because of the commissions their trading generates.
Asset allocation funds can shift their portfolio allocations between stocks, bonds and cash in order to capitalize on perceived investment opportunities in any one of those classes. For example, if the managers are convinced the bond market is depressed and due for an upswing, they may invest heavily in fixed-income investments for a few months to take advantage of the change.
Learn more about asset allocation funds and other risky strategies by following TSI Network. Build a sound portfolio byusing our three-part Successful Investor strategy:
Invest mainly in well-established companies;
Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
Downplay or avoid stocks in the broker/media limelight.
What are key tips to ensure that your investment portfolio holds the best income funds for retirement?
Uncovering the best income funds for retirees is a key part of any strong financial plan. We recommend that you ensure the best results from that plan by choosing… Read More
The bond market outlook was once positive—but not now. In fact, it puts investors at risk of capital losses if inflation or interest rates rise
The bond market outlook had a lot of investor appeal in the turbulent years of the 1930s and 1940s. Back then,… Read More
Asset allocation funds work great in hindsight—but they’re far less effective at forecasting the future.
Traditionally, asset-allocation funds adjust their portfolio weightings between stocks, bonds and cash in order to capitalize on perceived shorter-term investment opportunities in any one of those classes. For example, if the… Read More
Early in my investment career, before I had much money of my own to invest, I took a strong interest in market indicators (also known as investor rules of thumb, investor guidelines, market lore and so on). Who could resist? Market indicators seemed to provide… Read More
The growth of passive investing has accelerated with the expansion of ETF investments. Here’s more on that trend, plus a look at other passive investments you should know about
Passive management is also known as indexing. That’s in contrast to active management.
Fund providers in Canada and the U.S. continue to actively introduce new ETFs. This month we highlight three recent additions.
Bank of Montreal (BMO) recently launched three asset allocation ETFs that invest in other BMO ETFs.
Each of the three ETFs acts as “fund of funds,” with its… Read More
A: The Vanguard Conservative ETF Portfolio, $24.04, symbol VCNS on Toronto, holds roughly 40% of its assets in Vanguard stock ETFs and 60% in bond ETFs. This $117.8 million ETF started up on January 25, 2018, and has a 0.22% MER. The ETF yields 3.1%.
Generally, robo-advisors offer a set number of investment portfolios largely composed of ETFs. They then use a client’s investment profile—factoring in their needs and risk tolerance—to determine which of those portfolios is best suited to the individual investor.
Robo-advisors claim that their exclusive algorithms take the… Read More
The bond market outlook can provide a false sense of security. In fact, it puts investors at risk of capital losses if inflation or interest rates rise.
The bond market outlook had a lot of investor appeal in the turbulent years of the 1930s and 1940s… Read More
Investing in bonds: Bonds are unlikely to perform as well in the next few years as they have in the past, mainly because interest rates will likely hold steady or rise further. (Bond prices and interest rates are inversely linked. When interest rates go up,… Read More
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