 Personal Finance Powerpoint Presentation, Asset Allocation Fund. Prepare to get financially fit by practicing personal finance. Most of this information can be found at Investopedia Asset Allocation Fund, which you can find online. Take a look at the references, resources, continue your research from there. This by Adam Hayes updated July 27, 2021. In prior presentation, we've been taking a look at investment goals, investment strategies, types of investments. Keeping that in mind, we're now considering what is an asset allocation fund? An asset allocation fund is a fund that provides investors with a diversified portfolio of investments across various asset classes. So we've talked about the need for diversification, for asset allocation, keeping in mind our target goal that we're aiming for and the strategies, the risk tolerance that we have to get there. The asset allocation of the fund can be fixed or variable among a mix of asset classes, meaning that it may be held to fix percentages of asset classes or allow to go overweight on some, depending on market conditions. So in other words, you might then set the rules for this particular fund. So notice that if you have an end goal, such as the retirement, for example, then you might try to pick one fund that's gonna help you with that asset allocation, which hopefully can simplify the process and the fund itself is gonna be doing that rebalancing process. Then of course, you have the question, well, what kind of rebalancing is that particular fund going to be doing as the time horizon changes as you get closer to retirement? And of course, they can take different strategies to do that. They could have a fixed kind of allocation or the classes may allow to go overweight on some, depending on the market condition, giving a bit of a little bit more leeway to the fund in those cases. Popular asset categories for asset allocation funds include stock bonds and cash equivalents that may also spread out geographically for additional diversification. So obviously we can diversify between the different types of assets we have than the spread within each of those categories and then by location to further diversify. Understanding an asset allocation fund, asset allocation funds were developed from modern portfolio theory. So we have a theory about the way the portfolio should be basically set up. That's gonna take into consideration the mix. It's also gonna take into consideration the time horizon. Modern portfolio theory shows that investors can achieve optimal returns by investing in a diversified portfolio of investments including an efficient frontier. So note when you think about the optimal types of investments, the idea would be that you would need some kind of asset allocation. Then you could try to think about what the standard asset allocation might be given the time horizon and the tolerance levels for examples. The standard applications of modern portfolio theory investing include an efficient frontier of stocks, bonds and cash equivalents. Furthermore, modern portfolio theory outlines how a portfolio can vary its asset mix to tailor to the risk tolerance of the investor. So you can even take a look at the types of portfolios you're looking at and possibly tailor it to your risk tolerance levels as well. Types of asset allocations funds, asset allocations funds provide a simplified application of modern portfolios theory with varying allocations in combination of assets for investors. So again, if you're someone that's trying to invest for retirement, your alternatives would be because pretty much anybody that's investing would be thinking I would need diversification, I need to allocate over the asset classes, I need to consider my goals, I need to consider my time horizon and then possibly have that varying in the asset allocation as I get closer to my goal. That's difficult for many people to do. Is it possible that I can just basically take a fund that can basically do that reallocation for me? That would be like the more simplified kind of method to do it. And again, there's a lot of arguments as to whether simply doing that would outperform possibly you trying to basically have a different approach in and of yourself or even possibly having a professional that was managing your portfolio that's basically trying to beat the standard theory, the standard method of diversification for example. So one of the most common types of asset allocation funds is a balance fund. A balance fund implies a balance allocation of equities and fixed income such as 60% stocks and 40% bonds. Investors will find numerous funds deploying the 60-40 mix as it has become a popular standardized strategy for investors seeking broad market diversification. So asset allocation funds also offer varying levels of diversification based on risk tolerance. Investors seeking additional investing categories beyond just 60-40 will find many options including conservative allocation funds, moderate allocation funds, and aggressive allocation funds. Life cycle and target date funds usually used in retirement planning are also considered a type of asset allocation fund. These funds are managed with a targeted mix of asset classes that start out with a higher risk return position and gradually become less risky as the fund nears its targeted utilization date. After determining a targeted asset allocation, funds can manage their investments selection in a number of ways. Some funds may choose to invest in a variety of exchange trade funds, ETFs, to represent different market exposures. Other funds may take a more active approach by using fundamental analysis to select top performing securities in each asset class. So when you're thinking about these funds, then again, you have to get into the idea, well, how are you doing this basic asset mix that is happening? Are you doing it with more active management that's gonna be involved in it? Which again, now you're gonna be dependent more on the active managers, which means it's probably gonna be more costly, or are you using some standardized method like an indexed type of approach and basically just shifting, in essence, the index is basically to weight properly in accordance with the conditions that have been set, which means you would have less leeway for the manager. The more leeway you have for the manager, the more trust you're having in a professional manager to basically outplay the market to some degree, and also the more costly it might be. So overall, most funds will actively monitor and allocate or rebalance securities in response to evolving market conditions and economic environments. So popular asset allocation funds. Below are examples of some of the investment industry's top asset allocation funds. You got the iShares Core Aggressive Allocation ETF, the AOA. So the iShares Core Aggressive Allocation EFT is a tracker fund that seeks to replicate the performance of the S&P Target Risk Aggressive Index. So notice it's tying it to basically an index. Your indexes are used for us to get an idea of certain segments of the market. They're kind of an averaging type of approach. So if you're tying something basically to an index, the index is already being calculated. You're just tying to it. It's really tying then the hands together a little bit of the investment manager, which could be a good thing because then you're not, you're just telling them to, you're not paying the investment manager, you're trying to get them to tie to like an index. So the fund invests to the target ETFs that seek to replace the index. The index is heavily weighted towards equities targeting investors with a high risk tolerance. So meaning aggressive, right? These are aggressive people that wanna see the returns, right? They wanna see some action happening. And so the iShares Core Conservative Allocation ETF or the AOK, so the iShares Core Conservative Allocation ETF is a tracker fund that seeks to replace the performance of the S&P Target Risk Conservative Index. So now we're on the conservative side of things. The fund invests in ETFs that seek to replace the index. So once again, we're looking tying it kind of to an index. The index is heavily weighted towards fixed income targeting investors with a more conservative risk tolerance. And if you're looking at time horizons, you would expect people that are closer to retirement possibly to be seeking the second one more often because they might need the money sooner, people that are having growth potential long time horizons, often young males possibly, are gonna be aggressive possibly over here with this one, with the long time horizons. So the Vanguard Balance Index, the VBIAX, Investors Seeking Asset Allocation Funds will find a number of options with Vanguard. So Vanguard's another nice place to take a look at that has a lot of mutual funds and index funds. The firm's Vanguard Balance Index Funds invests approximately 60% in stocks and 40% in bonds. It's holding seek to track two indexes, the CRSP US Total Market Index and the Bloomberg US Aggregate Float Adjusting Bond Index.