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Investing In Mutual Funds And Asset Allocation Funds
For Your 401k-IRA Rollover Account.

Mutual funds allow you have a diversified investment portfolio.

A diversified portfolio is important because it can reduce your overall risk. 

Since a mutual fund contains the common  stocks of a variety of different companies, the risk is spread around. 

This reduces the chance that a bad performance by a few stocks will cause a substantial loss to your retirement IRA.  
It is not an easy decision as to which mutual funds you are going to invest your hard earned retirement dollars.  You certainly don't want to make any big mistakes -- and if you get too careless, you will make a big mistake.
Diversification of assets is an important investment strategy for all investors but is has more significance for your IRA retirement account. 

It's not like when you were young and there was plenty of time to make up for any bad financial setbacks.  When you retire, you generally won't have any more big paydays.

One mutual fund will usually not offer you the compelte diversification that your retirement assets should have.  It is better to be invested in at least several mutual funds to better protect yourself against a decline in the market.

Equity funds, which really means stock funds, can connsist of growth and value funds.  Growth and value stocks can be either large, mid or small capilization companies. There also are funds of foreign companies which would give you a global diversification feature.
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Investing Your 401K, IRA and Your Rollover into Mutual Funds
A diversified retirement portfolio along with stocks funds, should also contain fixed-income security funds, which are really bond funds. 

Bond funds can be investment-grade which means they are of higher investment quality but generally pay lower interest.  Bond funds can also consist of high-yield bonds, also known as junk bonds, which pay higher interest but are of poorer investment quality.

If all of the above seems complicated and overwhelming to you, you are correct -- it is.  To become properly diversified, you would have to invest in many types of mutual funds.  Most people don't have the investment skill or the time to succcessfully diversify their retirement assets.

But there may be a better way -- Asset Allocation Funds.
Asset Allocation Funds
Most Mutual Fund companies now are offering what is known as Asset Allocation Funds.  Quite simply, asset allocation funds are meant to simplify the process of diversifying your retirement portfolio.

Asset allocation funds are touted as being professionally managed to assure broad diversification across all different asset classes. 
All Sounds Good -- But Still Use Caution
You still must remember that investing in mutual funds contain a risk factor that should not be discounted.  This applies to both equities (stock funds) and fixed-income securities (bond funds).

You must determine how much risk you can tolerate.  There is no law that says you must put all of your retirement money into mutual funds, individual stocks, individual bonds, exchange traded mutual funds (ETF's), or whatever.

Maybe you should also consider a good mix of insured bank accounts, Certificates of Deposit (CD's), and U.S. Treasury Bonds, Bills, & Notes. They're not as glamorous and high-flying --- but there's something to be said for your peace of mind.
The asset class mix is regularly monitored and any adjustments to the investment mix can then be made.

Asset allocation funds also can have a target date feature. 

The target date is the year when you will be retiring or a year for another goal in your life. 
For instance, an asset allocation fund could be Fund 2015; Fund 2025; Fund 2045 and so on.
Each of these target allocation funds are usually comprised of many other different mutual funds of the same mutual fund family.  The theory of the target date fund is that when you get closer to the target date of the fund, your investments will become less risky. 

Today, Fund 2045 would have a greater percentage of its assets invested in growth equities than would Fund 2015.  Fund 2015 would invest more heavily in fixed-income securities.  This is because over a long period of years the gains from stocks have generally exceeded the gains from fixed-income securities. 

If you are in Fund 2045, you have more years to weather the ups and downs of the market.

There are also asset allocation funds that are not connected to your age or your retirement date.  These funds are not funds of many different funds -- unlike the target date asset allocation funds.  Their asset investments though, are structured to give your retirement account a diversified approach.
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