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Asset Allocation Funds for Your IRA & 401K Rollover

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. You can use Asset Allocation Funds for either your traditional IRA or Roth IRA --- and even for your Small Business 401K Plan.

Asset Allocation Funds are touted as being professionally managed to assure broad diversification across all different asset classes.  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 2025; Fund 2040; Fund 2055 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 2040 would have a greater percentage of its assets invested in growth equities than would Fund 2025.  Fund 2025 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 2040, 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.

Investing Your IRA Should Be Done With 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.