Definition and Example of Mixed Investment Funds
How Mixed Investment Funds Work
Types of Mixed Investment Funds
Do I Need Mixed Investment Funds?
Definition and Example of Mixed Investment Funds
Mixed investment funds are considered mutual funds or exchange-traded funds (ETFs) that invest in more than one type of security, such as stocks and bonds. They allow investors to own a mix of different elements that are typically found in two or more funds while investing in a single mutual fund. This makes mixed investment funds valuable for investors who want an independent option. They are also a good fund for beginners or as a core asset in a portfolio of mutual funds.
Alternative names: Balanced Funds, Asset Allocation Funds
How Mixed Investment Funds Work
Mixed investment funds typically contain a mix of stocks and bonds. The asset allocation can remain stable or change over time, depending on the type of bond. The fund has a stated objective, such as aggressive growth, moderate growth, or preservation. This indicates the level of risk and the type of growth that the fund is likely to achieve. It may make sense for many investors to purchase mutual funds that focus on multiple goals or asset classes or types of securities rather than just one type of investment. Mixed investment funds allow investors to increase the diversification of their investments with one investment.
Types of Mixed Investment Funds
There are two main types of mixed investment funds: balanced funds and target-date funds.
Balanced funds: The asset allocation in balanced funds remains stable over time. These funds generally fall into one of the following three categories: conservative, moderate, or aggressive portfolios.
Conservative funds hold more bonds and fewer stocks. They are safer investments with lower risk potential, as well as slower growth.
Moderate funds have a balanced asset allocation for medium risk and average growth. A moderate fund might include 65% stocks and 35% bonds.
Aggressive funds generally contain a much larger number of stocks than bonds. This makes them high-risk, high-return investments with the potential for significant growth and loss.
Target-date funds: Investors choose the year nearest their investment goal’s end date when purchasing a target-date fund. The asset allocation in the fund changes over time relative to the target date.
Target-date funds are sometimes known as lifecycle funds.
These funds follow a high-risk, high-return investment strategy initially, with up to 90% of assets allocated to stocks. This increases the likelihood of early growth.
The asset allocation automatically shifts to become less risky as the target date approaches. It favors investments in conservative assets like bonds. This slows down investment growth, but it also preserves your money’s safety.
Target-date funds often have a year in their name, such as Retirement 2040. This tells you the range of appropriate target dates.
Target-date funds are commonly used for long-term financial planning, such as retirement accounts or education savings. The target date you choose can be the year you plan to retire or send a child to school. The change in asset allocation means that your investment becomes more conservative as you get closer to using the money to reduce the risk of loss.
Some 401(k) plans use target-date funds as a default option for plan participants who do not choose their investments.
Do I Need Mixed Investment Funds?
Mixed investment funds are a good option for many investors. They allow you to diversify your investments with a single mutual fund. Beginners can use mixed investment funds to start investing, or they may use them as core assets in a portfolio of mutual funds or exchange-traded funds.
They come
Mixed investment funds come with risks, like all investments. Aggressive balanced funds can experience high growth, but they can also be unstable. Increasing equity allocation can lead to better long-term performance, but the higher relative risk and lower returns in bear markets may be too unstable for low-risk tolerant investors.
A financial advisor can help you define your goals if you’re uncertain whether mixed investment funds are the right choice for you. They can assess your risk tolerance and guide you to appropriate investments.
Takeaways:
- Mixed investment funds are mutual funds or exchange-traded funds (ETFs) that provide a mix of more than one type of primary investment asset class.
- Mixed investment funds can consist of a combination of stocks, bonds, and/or cash.
- Common types of mixed investment funds include balanced funds and target-date funds.
- Mixed investment funds can be a good option for many investors, as they allow for diversification of investments with a single mutual fund.
- Mixed investment funds come with risks, and a financial advisor can help you determine if they are suitable for you.
Source: https://www.thebalancemoney.com/what-are-hybrid-funds-2466758
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