What is a 'Multi-Asset Class'

A multi-asset class, also known as a multiple-asset class or multi-asset fund, is a combination of asset classes (such as cash, equity or bonds) used as an investment. A multi-asset class investment contains more than one asset class, thus creating a group or portfolio of assets. The weights and types of classes vary according to the individual investor.

BREAKING DOWN 'Multi-Asset Class'

Multi-asset class investments increase the diversification of an overall portfolio by distributing investments throughout several classes. This reduces risk (volatility) compared to holding one class of assets, but might also hinder potential returns. For example, a multi-asset class investor might hold bonds, stocks, cash and real property, whereas a single-class investor might only hold stocks. One asset class might outperform during a particular period of time, but historically, no asset class will outperform during every period.

Risk Tolerance Funds

Many mutual fund companies offer asset allocation funds that are designed to perform according to an investor’s tolerance for risk. The funds can range from aggressive to conservative in nature. An aggressive-style fund would have a much higher allocation to equities, with maybe as much as 100%. The Fidelity Asset Manager 85% fund (“FAMRX”) is an example of an aggressive fund. The fund is designed to keep 85% of the fund’s allocation in equities and 15% between fixed income and cash. For conservative investors, a fund’s allocation would have significantly more concentration in fixed income. The Fidelity Asset Manager 20% fund (“FASIX”) has 20% in stocks, 50% in fixed income and 30% in short-term money market funds.

Target Date Funds

Target date funds are multi-asset funds that change the allocation according to the investor’s time horizon. Investors would select the fund that would closely mirror their personal time horizon. For example, an investor not retiring for over 30 years should select one of the 2045 or later target funds. The later the date on the fund, the more aggressive the fund is due to the longer time horizon. A 2050 target date fund has over 85 to 90% in equities and the remaining in fixed income or money market.

An investor whose time horizon is significantly shorter would select one of the more recent maturing funds. Someone retiring in five years would have a target date fund with a higher level of fixed income to reduce the overall risk and focus on capital preservation.

Target date funds are beneficial for investors who do not want to be involved in choosing an appropriate asset allocation. As the investor ages and the time horizon lessens, so does the risk level of the target date fund. Over time, the fund gradually moves from equities to fixed income and money market automatically.

See if you can create your own mix of investments by reading Multi-Asset Funds Or Your Own Mix?

Benefits of Multi-Asset Class Funds

Unlike balanced funds, which typically focus on meeting or beating a benchmark, multi-asset class funds are composed with the aim of achieving a certain investment outcome, such as exceeding inflation. Their broad options for investing, ranging across securities, sectors, real estate and other types of securities, give them enormous flexibility to meet their goals. This type of fund also offers more diversification than most balance funds, which may combine mainly fixed income and equities. Many are actively managed, meaning a person or group of people make decisions based on the dynamics of the market in order to maximize returns and limit risk. 

RELATED TERMS
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave ...
  2. Asset Allocation Fund

    An asset allocation fund is a fund that provides investors with ...
  3. Multiple Capital Structure

    The classification of a company's stock and bond offerings into ...
  4. A-Share

    An A-share is a share class offered in a family of multi-class ...
  5. Hybrid Fund

    A hybrid fund is an investment fund that is characterized by ...
  6. Dual Purpose Fund

    A fund created by a closed-ended investment company that offers ...
Related Articles
  1. Investing

    The Top Multi-Asset Exchange-traded Funds

    The importance of an effective diversification cannot be stressed enough. Established multi-asset ETFs can help to increase diversification.
  2. Retirement

    Which Fund Share Class is Best for Retirement?

    Mutual funds are a popular investment for retirement. Here's how to choose the best share class when investing in them.
  3. Investing

    Why Asset Allocation Is Important

    Proper asset allocation results in diversification which increases potential gains and reduces risk.
  4. Investing

    Fidelity Asset Allocation Funds Overview

    Learn the different types of asset allocation funds that Fidelity offers; such as the target-date, target risk and income replacement funds.
  5. Financial Advisor

    An Introduction to Asset Allocation

    A portfolio is only as strong as its asset allocation. To create the right one, investors need to determine their risk tolerance, time horizon and goals.
  6. Investing

    What are Class B Shares?

    Class B shares are one classification of common stock issued by corporations.
  7. Investing

    Multi-Asset Funds Or Your Own Mix?

    The underlying concept of mixed funds is very appealing. Discover if you're better off with professional management or creating a mixed fund of your own.
  8. Investing

    4 J.P. Morgan Funds With Long Track Records (JUEAX, OIEIX)

    Discover four mutual funds administered and managed by J.P. Morgan that invest in a wide variety of securities and have long track records.
  9. Investing

    3 Benefits of Looking at Asset Classes Beyond Your Portfolio

    Discover three of the primary advantages for investors that can be obtained by diversifying their investment portfolio with different asset classes.
  10. Investing

    The Pros And Cons Of Target-Date Funds

    These accounts will take charge of your retirement savings, but should you let them?
RELATED FAQS
  1. Why would a company have multiple share classes, and what are super voting shares?

    Before investing in a company with multiple share classes, be sure to learn the difference between them. Read Answer >>
  2. The difference between Berkshire Hathaway's Class A and Class B shares

    Price is the primary difference between Berkshire Hathaway's Class A stock and Class B stock, but there are other distinctions. ... Read Answer >>
Hot Definitions
  1. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  2. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  3. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  4. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  5. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
  6. Interest Coverage Ratio

    The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest ...
Trading Center