Is a multi-asset fund right for you?

They provide simplicity and convenience, but there are drawbacks, says Morningstar's Shehryar Khan.

Shehryar Khan, CFA 3 November, 2017 | 5:00PM
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Shehryar Khan: Investors sometimes underestimate how much their investments and their homes have in common: Both need constant upkeep and tinkering, and sometimes more seriously need wholesale repairs.

When it comes to picking their investments, do-it-yourself investors have two options: The first is to do their own research and pick individual funds in each asset class while still ensuring that their overall portfolio still aligns with their needs. This approach offers the opportunity to buy the best available option within each asset class and diversify your exposure to fund managers, but it involves potentially higher fees and more work, including ensuring you manually rebalance your portfolio back to your target allocations on a regular basis. While it is easier to change a single fund this way without overhauling your whole portfolio, having multiple funds in your portfolio means more fund companies and managers to monitor for personnel changes, deterioration in performance, and more.

The second alternative is to purchase a multi-asset fund: This provides investors with a one-stop shop and has its own inherent pros and cons. The biggest benefit is that a multi-asset fund will take care of your asset allocation and rebalancing concerns for you, as well as giving you just a single fund to monitor. However, the likelihood that one fund company can provide exceptional management in both equity and fixed income is rare, and fund companies rarely open their multi-asset offerings to include non-proprietary products. This means you're also likely exposed to a single investment philosophy and style.

Whichever way investors choose to go, they should always remember to review their investments on a regular basis to ensure they are still in line with their risk-tolerance and long-term goals. At the end of the day, just like a house, your portfolio will only be as strong as its foundation.

For Morningstar, I'm Shehryar Khan.

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Shehryar Khan, CFA

Shehryar Khan, CFA  Shehryar Khan, CFA, is a senior investment analyst for Morningstar’s Investment Management group.

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