How Multi-Asset Investing Works
There are several different ways you can carry out a multi-asset investing plan. Stocks and bonds make up the bulk of most portfolios, but you can also invest in:
Cash (including foreign currencies) Real estate Commodities Precious metals Collectibles
A truly diversified multi-asset portfolio will have a mix of many of these assets. You might even decide to invest in all of them. Any asset could outperform or underperform the others at any given time, and a well-diversified investor can handle any scenario. Having a diverse multi-asset portfolio can protect against volatility and major market swings.
Multi-Asset Investing Products
Investors can follow a multi-asset investing strategy on their own by diversifying their holdings as they see fit. However, they can also let professionals handle the (sometimes tricky) task of deciding how many funds to put toward which assets. Consider these two popular multi-asset investing products: target-date mutual funds and target-allocation mutual funds.
Target-Date Mutual Funds
A target-date mutual fund is designed to grow and protect the earnings based on the year in which you expect to begin making withdrawals. They often have names containing the target year, like the Fidelity Freedom 2055 Fund. These funds are commonly used for retirement or college savings plans. Most often, a target-date fund will begin aggressively with mostly stocks. Then it will gradually shift to safer and more stable investments as the target year approaches. At that point, the fund focuses mostly on providing fixed income.
Target-Allocation Mutual Funds
Most mutual fund companies offer a selection of funds geared toward your risk tolerance. You pick how much risk you want to assume, and the mutual fund diversifies your assets accordingly. If you don’t mind significant risk, you may end up with a stock-heavy portfolio, but if you prioritize safe investments, you may end up with a bond-heavy portfolio. Unlike target-date funds, these levels of diversification are set and won’t significantly change over the years.
Pros and Cons of Multi-Asset Investing
Pros Explained
Diversification: Multi-asset investing is an easy way to achieve diversification and all of the benefits that come with a diverse portfolio. Protects against heavy losses: By spreading your investments across multiple assets, you can benefit from gains in all of those asset classes without exposing yourself too heavily to the risks associated with them. One asset’s value can tank; as long as you’re properly diversified, it won’t wipe out your entire portfolio.
Cons Explained
May miss opportunities for gains: A multi-asset mutual fund will not perform as well as most stock funds in most years, because it will likely contain bonds, cash, and other assets that might not earn the same returns. Fixed-income assets, like bonds, aren’t usually designed to earn significant gains. If you can tolerate high risk in pursuit of maximum returns, you will likely prefer to invest mostly in stocks.Higher management fees: Target date and target allocation funds often have higher management fees than funds containing a single asset. That is because the funds are usually actively managed by a professional rather than passively tracking a stock index. The time and energy that a manager spends balancing the fund’s assets translate into fees can cut into your overall investment returns over time.
