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Asset allocation mutual funds explained

By Jakob Jelling
Cashbazar.com

Mutual funds with more risk than balanced funds.

Asset allocation mutual funds are different from "balanced" mutual funds. However, they can sometimes operate in a similar fashion. The major difference between "asset allocation" and "balanced" mutual funds is just the amount of control that the mutual fund manager will have over what and when they invest. If you're looking for a mutual fund in which there are more controls over what the manager can choose to invest in, then you should definitely choose a balanced mutual fund.

However, if you're looking for a fund in which you give more trust to the manager to make the right investment decisions at the right times, then you should choose to invest in an asset allocation mutual fund.

For balanced mutual funds , the manager is required to make sure that there are investments in all of the different types of markets at the same time. For instance, there will be a fixed percentage of the mutual fund investments that must be in the stock market, bond market or currency markets. Usually, you will be able to find out how much of the balanced mutual fund is in each of these different markets. If the mutual fund will not keep you informed about how it is balanced, then you know it is not a trustworthy balanced mutual fund.

Asset allocation mutual funds are a bit trickier. In this case, it is still true that the mutual fund will be investing in several different companies. However, it is not required that the asset allocation mutual fund invest in the different types of markets at the same time. This gives extra power to the mutual fund manager to make the decisions as to how much of the fund's assets are put into one type of investment or another.

Therefore, if you are going to go with an asset allocation mutual fund, you should make sure that you trust the fund manager with those sorts of decisions. As you can probably guess, this means that the asset allocation mutual funds will have a slightly higher risk than a balanced mutual fund. You will be able to make more money with an asset allocation fund - but it is likely that your investments will be less diverse than they might be in another type of mutual fund - so choose wisely.

About the author
Jakob Jelling is the founder of http://www.cashbazar.com. Visit his website for the latest on personal finance, debt elimination, budgeting, credit cards and real estate.

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