Asset Allocation Fund

AAA

DEFINITION of 'Asset Allocation Fund'

A mutual fund that provides investors with a portfolio of a fixed or variable mix of the three main asset classes - stocks, bonds and cash equivalents - in a variety of securities. Some asset allocation funds maintain a specific proportion of asset classes over time, while others vary the proportional composition in response to changes in the economy and investment markets.

INVESTOPEDIA EXPLAINS 'Asset Allocation Fund'

Asset allocation mutual funds come in several varieties. Generally, a "balanced fund" implies a fixed mixed of stocks and bonds, such as 60% stocks and 40% bonds. "Life-cycle" or "target-date" funds, which are often used in retirement plans, usually have a mix of stocks, bonds and cash equivalent securities that starts out with a higher risk-return position and gradually become less risky as the investor ages and/or nears retirement. So-called "life-style," or actively-managed asset-allocation funds provide the active management of a fund's asset classes in response to market conditions.

RELATED TERMS
  1. 130/30 Mutual Fund

    A mutual fund that has long positions and short positions in ...
  2. Diversification

    A risk management technique that mixes a wide variety of investments ...
  3. Asset Allocation

    An investment strategy that aims to balance risk and reward by ...
  4. Blend Fund

    A category of equity mutual funds with portfolios that are made ...
  5. Balanced Fund

    A fund that combines a stock component, a bond component and, ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
RELATED FAQS
  1. How can I use asset allocation to properly diversify my portfolio?

    Asset allocation is the process of dividing a portfolio among a number of different asset classes. Most commonly, asset allocation ... Read Full Answer >>
  2. Are so-called self-offering and self-management covered by "Financial Instruments ...

    As the Financial Services Agency (FSA) explains, self-offering of interests in collective investment schemes falls under ... Read Full Answer >>
  3. What type of asset allocation should I use if I am already retired?

    Among investors, asset allocation is a topic of discussion that receives a great deal of weight during the asset accumulation ... Read Full Answer >>
  4. What is the difference between payment netting and close-out netting?

    Both payment netting and close-out netting are methods of settlement between two or more parties, used to reduce risk exposure. ... Read Full Answer >>
  5. What is the minimum capital adequacy ratio that must be attained under Basel III?

    Under Basel III, the minimum capital adequacy ratio that banks must maintain is 8%. The capital adequacy ratio measures a ... Read Full Answer >>
  6. How is portfolio variance reduced in Modern Portfolio Theory?

    According to modern portfolio theory, or MPT, portfolio variance can be reduced by diversifying a portfolio through the inclusion ... Read Full Answer >>
Related Articles
  1. Investing Basics

    5 Things To Know About Asset Allocation

    Overwhelmed by investment options? Learn how to create an asset allocation strategy that works for you.
  2. Bonds & Fixed Income

    7 Lessons To Learn From A Market Downturn

    Don't learn these lessons the hard way. Read on to make sure you can weather an unstable market.
  3. Mutual Funds & ETFs

    Published Mutual Fund Returns Not Always What They Appear

    Survivorship bias erases substandard performers, distorting overall mutual fund returns.
  4. Mutual Funds & ETFs

    Mutual Fund Tune-Up Delivers High-Powered Performance

    Rebalancing your portfolio will protect you from risk and ensure that your investments are performing at their best.
  5. Retirement

    Why It Pays To Be A Lazy Investor

    Be a couch potato! This passive, but diversified, investing strategy could be for you.
  6. Mutual Funds & ETFs

    Permanent Portfolio Locks In Long-Term Profits

    Harry Browne believes his "permanent portfolio" theory is the ideal long-term investing strategy.
  7. Mutual Funds & ETFs

    Do Focused Funds Provide a Better Outlook?

    Should you diversify or focus? Read on to decide which will work best for you.
  8. Mutual Funds & ETFs

    Mutual Fund Basics Tutorial

    Learn about the basics - and the pitfalls - of investing in mutual funds.
  9. Fundamental Analysis

    Understanding Modern Portfolio Theory

    Modern portfolio theory describes ways of diversifying assets in a portfolio in order to maximize the expected return given the owner’s risk tolerance.
  10. Investing Basics

    Explaining Idiosyncratic Risk

    Idiosyncratic risk is the risk inherent in a particular investment due to the unique characteristics of that investment.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!