Ok let's be honest, this asset allocation stuff can be crazy confusing. In order to alleviate the confusion and make money off you, asset managers offer funds that do your asset allocation for you. They're called Multi-Asset funds.
Multi-Asset funds have been in the news over the last few weeks, mostly because, nobody knows where to put there money. Your bond funds are down about 3 percent or so for the year most likely, your U.S. stock funds are still up over 10 percent, but international stock funds have been hit, as has gold and other commodities in general.
Here's what Multi-Asset do:
• Say you have $1,000 dollars.
• You invest $1,000 in a Multi-Asset fund.
• The manager of that fund decides which asset classes to invest in for you.
• The fund manager rebalances the portfolio and makes sure the fund is
diversified across a handful of asset classes so you don't have to worry about it.
But there are two glaring risks:
1) It is not easy to be the jack of all trades, i.e. switch from investing in bonds to investing in stocks. It is hard to time the market right and many (most) portfolio managers are not that.
2) The asset allocation of the fund is not tied to your own personal risk tolerance and risk tolerance for your age (also talked about in the asset allocation video).
3) Some of these funds charge high sales fees.
Check out the video, we talk about these risks and a few more.
This post is part of a regular series of money explainers for non-finance people. Follow along and join in the conversation at good.is/makinsense.
Image via (cc) flickr user 401(K) 2013