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:
Learn how to look for blue chip companies that are likely to pay off if business and the stock market are good, but that won’t hurt you too much during those inevitable periods when business or the markets are bad. Download Canadian Blue Chip Stocks: Bank of Nova Scotia Stock, CP Rail Stock, CN Rail Stock and More.
Top-quality bank stocks are a sound addition to the Finance sector of most portfolios. However, you should also diversify your holdings with high-quality non-bank stocks such as these two.
H&R BLOCK INC. $19 (New York symbol HRB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 325.0 million;… Read More
H&R BLOCK INC. $23.03, New York symbol HRB, moved up on news that investment firm Breeden Capital Management, which is headed by a former SEC chairman, aims to elect three of its nominees to H&R Block’s 11-member board of directors. Breeden owns 1.86% of H&R,… Read More
ANHEUSER-BUSCH COMPANIES INC. $51.16, New York symbol BUD, gained nearly $2 on rumors it is thinking about merging with European brewer InBev. A merger would create the world’s largest brewer, and undoubtedly run into anti-trust problems in several countries. It would also take years of… Read More
T. ROWE PRICE GROUP, INC. $37 (Nasdaq symbol TROW; Aggressive Growth Portfolio, Finance sector; WSSF Rating: Average) sells and manages over 80 no-load mutual funds. The company also provides wealth management, brokerage and other financial services. It currently oversees assets worth roughly $293 billion.
The company… Read More
STATE STREET CORP. $59 (New York symbol STT; Aggressive Growth Portfolio, Finance sector; WSSF Rating: Average) provides custodial, research, accounting and other services to large institutional investors, such as pension plans and mutual funds.
The company gets about 80% of its revenue from management and other… Read More
Uncertainty over interest rates, oil prices and the Mideast situation has hurt world equity markets in the past few months. However, we feel that this is a temporary setback, and not the start of a protracted bear market.
These three investment firms earn much of their… Read More
Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' FREE Special Report from The Successful Investor.
How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.
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