A great way to diversify your investments and lower your risk is to use asset allocation funds. They provide diversification within a single fund; each one is spread among asset classes, countries and investment management styles.
There are three types of asset allocation funds: target risk, target date and risk-adjusted target date funds.
These asset allocation funds are matched to your unique investment personality, and the amount of risk that works for you. Fund managers ensure the diversified mix of investments continues to match your risk tolerance level. The funds are given names such as Conservative, Moderate, Balanced, Advanced or Aggressive.
These asset allocation funds are managed toward your target retirement date. The investment mix in these funds is planned with an emphasis on growth in early years and gradually becomes more conservative as you approach your target retirement date. This planned approach to investment returns is referred to as a glide path.
Risk-adjusted target date
These asset allocation funds combine target risk and target date funds in a single fund. There are three sets of funds – conservative, balanced and aggressive. These funds match your retirement year with your risk profile, which you can determine with a short Risk-adjusted target date fund investment personality questionnaire.
Selecting a target risk, target date or risk-adjusted target date fund
You select a target date fund by choosing a fund that’s closest to your expected retirement year.
You select a target risk fund by completing the Investment personality questionnaire to determine your tolerance for risk and then you choose the fund that matches your investment personality.
You select a risk-adjusted target date fund by completing the Risk-adjusted target date fund investment personality questionnaire and determining your risk profile. Once complete, choose a fund that matches your risk profile and is closest to your desired retirement year