A Brief Guide to Mutual Fund Allocation

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A Brief Guide to Mutual Fund Allocation

Daniel Cross Jan 21, 2016




Mutual Fund Management


When you’re looking at a potential mutual fund, you’ll want to figure out what type of fund it is and what its investment strategy is. A common fund type is known as a balanced fund. While the allocations vary from fund to fund, the most common allocation is 60% invested in equities and 40% invested in bonds and other conservative products. This mix gives investors a fairly diverse portfolio already but shouldn’t be the entirety of one’s investment plan.

Mutual funds are required to stay within a certain allocation range. Taking from our example above, the hypothetical balanced fund might be able to increase or decrease its allocation by, say, 10% either way. If the fund manager is bullish on the economy, he or she might change the mix to include 70% equities and only 30% bonds. If they’re more cautious, they might split it 50-50.


One simple rule of thumb for risk tolerance is to subtract your age from 110 to determine what percentage of your portfolio should be in equities. If you’re 30 years old, for example, you would want at least 80% in stocks and no more than 20% in bonds.

In order to achieve the right mix, you’ll need to spread your mutual fund investments into at least two separate funds – probably more if you’re including international exposure. Just remember to balance out your investments in order to get the percentages correct for what you need.


The Bottom Line


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