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Featured Advisor

Ed Meek
CEO/Investment Advisor

Edge Portfolio Management


State: IL

At Edge, a low client to advisor ratio allows for personal and customized service for each individual.  Our goal is to work as a team for each client to provide not only portfolio management but wealth coordination and financial planning.  We make every effort to have frequent communication with our clients and to provide timely response to calls and emails.  I also enjoy spending time with my wife and three kids, playing and following basketball, playing golf, and participating as an advisory board member for Breakthrough Urban Ministries.

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Investors' Approach to Allocation Funds Little Changed by Economic Downturn

Diversity and risk management still key decision factors

MillionareCorner.com has examined asset allocations and how they are used. But why do retirement plan participants choose to invest in them, and what is their approach?

One primary reason, according to our research, is that these investors prefer to let professionals make their allocation decisions. Another, which would seem to be closely related, is that they are “easy.” “The financial crisis of 2008 brought home the need to keep retirement plan assets in a well diversified portfolio,” said Gerry O’Connor, Director of Retirement Research for the Spectrem Group. “The continuing growth in the popularity of target date and other asset allocation funds is a way for participants to accomplish this  When they do not feel knowledgeable enough or for any reason don’t want to select funds themselves they can hand this task over to  the professionals who manage these funds.”

Asset allocation funds offer diversity and risk management, ideally generating steady returns through investment in a mix of stocks, bonds, and cash. There are three basic types: a balanced fund, which traditionally offers a fixed allocation of about 60 percent stocks and 40 percent bonds; Life-Cycle funds (also known as Target Date Funds), created to help investors achieve a specific financial goal within a specified period of time (saving for a home or college are two examples); and Lifestyle Funds, which take their cue from an investor’s risk tolerance.

Twenty percent are using more funds to invest their balance than they did a few years ago. Those most likely to have shifted to this approach are those with a balance of $100,000 or more, and those either under age 35 or over age 50. Of these investors, 37 percent said they were seeking greater diversification of their portfolios.

Of those who are investing in fewer asset allocation funds, 27 percent cite poor results, while 21 percent say they are getting older and opting for a more conservative approach.

More than half identify their investing approach as “moderate.” With an eye toward protecting their principal, they are willing to place only a limited portion of their balance in investments they perceive as risky.

Of those who do not choose to invest in asset allocation funds, nearly half (48 percent) say they could do a better job of selecting funds, while nearly a third (30 percent) do not understand how they work.

Despite the economic upheaval of the last few years, nearly 60 percent say their approach to investing their retirement money has not changed. However, 29 percent say they have become more conservative investors.