Should Multi-Asset Strategies Be A Part of Your Retirement Plan?

Can a buffet be better than à la carte? It may just be. A buffet offers a wide variety of options. You have fruits, salads, steaks, breads, gravies, and so much more. You can order from an à la carte menu, but then you have to choose only a few options. If they turn out to be good, that is great. But if they are not, your time and money may be wasted.

Building an investment portfolio works in a similar way. Having a combination of different assets may offer more exposure. A retirement portfolio diversification strategy ensures that you have a wide variety of investments in your portfolio. If you invest in only a few assets, your success or failure may depend heavily on them. But if you have multi-asset funds, you may have a lot more going for you.

Let’s find out whether a multi-asset investment strategy makes sense for your retirement planning.

What is a multi-asset fund?

A multi-asset fund is a type of investment fund that gives you exposure to different types of investments through a single investment. Most traditional funds focus on one asset class. For example, an equity fund primarily invests in stocks, while a debt fund invests in fixed-income securities such as bonds. If you also wanted exposure to Exchange Traded Funds (ETFs), gold, real estate, or cash-equivalent investments, you would have to invest in separate funds or products.

A multi-asset fund allows you to invest in all these asset classes together through one fund. Multi-asset funds can include a mix of shares and bonds. Some multi-asset funds may also invest in alternative assets such as real estate, commodities, gold, or cash and other liquid investments to further diversify the portfolio. However, the exact combination depends on the fund.

There are different types of multi-asset funds, such as:

Income funds: These funds are designed for investors who want a regular income from their investments. They invest in dividend-paying stocks and fixed-income securities.
Balanced funds: Balanced funds invest in a combination of equities and bonds. They offer the higher return potential of stocks with the relatively lower risk of fixed-income investments.
Fund of funds: These funds invest in other mutual funds or ETFs and provide exposure to multiple asset classes.
Target-risk funds: These funds focus on a specific level of risk and invest accordingly.

If you want to diversify your portfolio, keep your investments regularly rebalanced, and avoid the hassle of managing multiple asset classes yourself, a multi-asset fund may be a suitable choice. These funds are professionally managed, with the fund manager handling asset allocation and periodic rebalancing on your behalf.

What are the benefits of a multi-asset investment strategy and should you use it for retirement planning?

There can be many advantages to using a multi-asset investment strategy. Let’s discuss these one by one to see if they can be right for retirement planning:

1. Multi-asset funds can help manage risk

Multi-asset funds spread your investments across different asset classes. These funds can invest in a mix of different options, such as equities, fixed-income assets, gold, cash, and alternative assets. As a result, they can help reduce the impact of market volatility while still providing opportunities for long-term growth.

Even when some assets lose value or suffer losses, you can rely on other options. For instance, bonds can be a stable asset class with steady interest payments. Real estate or gold may also offer a hedge against inflation, and they are not correlated to the stock market. Adding these types of additional classes to your portfolio creates a cushion during periods of market lows and reduces the risk of loss.

Let’s consider the following example:

One investor invests only in stocks. All of their capital goes to stocks of different companies. Unfortunately, there is a market downturn and the stock market falls. The investor ends up losing 40% of the portfolio’s value within a month.
Another investor invests in a diversified multi-asset portfolio comprising stocks, bonds, gold, and cash. The stock market declines in this case, too. But the losses are partially offset by the relatively stable performance of the other asset classes. This ultimately results in a much smaller overall loss.

This is why retirement portfolio diversification is important. While a diversified portfolio does not guarantee profits, it can help reduce overall risk. Multi-asset funds provide exposure to different sectors, industries, markets, and investment strategies. This allows you to participate in market growth while potentially limiting the impact of downturns, making them a strong balance between growth and stability.

2. Multi-asset funds follow a dynamic investment strategy

Multi-asset funds are actively managed and do not stay fixated on a single investment or asset class. These funds can adapt to changing market conditions and investor risk appetites. Their fund managers regularly review the portfolio and adjust the asset allocation.

For example, target-date funds are a type of multi-asset fund that automatically becomes more conservative as you approach your retirement. When you start investing in them, your money will be invested in equities to maximize long-term growth potential. However, over time, as you move closer to retirement, the fund may gradually shift more of its investments into relatively stable assets, such as bonds and cash, to help preserve capital.

Many multi-asset funds also look for short-term market opportunities. Managers may increase exposure to asset classes or sectors with better growth potential while reducing investments in riskier areas. Some funds even use alternative investment strategies to help manage risk.

This dynamic approach allows multi-asset funds to evolve with changing economic conditions. As a result, the growth they offer may be better than some other funds.

3. The multi-asset investment strategy works for all types of investors

Another reason why a multi-asset investment strategy can be part of your retirement portfolio is that it can work for most types of investors. You can be an aggressive investor, a conservative one, or somewhere in between; it does not matter. You can create a mix of assets that suits your risk tolerance.

However, to use multi-asset funds, you first need to know your risk profile. You can find this out by consulting with a financial advisor or by asking yourself a few simple questions. For example, ask yourself whether you are comfortable with market ups and downs or prefer more stable returns.

Also, consider your investment horizon. In most cases, people with a longer investment horizon can take on more risk, whereas people with shorter investment horizons may take a more conservative approach. Once you understand your risk tolerance, you can build a strategy that matches it. Since multi-asset portfolios invest in a combination of asset classes with different risk profiles, there is usually something for every type of investor. Conservative portfolios may have a higher allocation to bonds and cash, while more aggressive portfolios may have a greater allocation to equities and alternative investments.

For instance, people with a low-risk appetite can invest in multi-asset funds, such as target-risk funds focused on low-risk, balanced funds, and income funds. People with a higher risk appetite can invest in fund of funds, target-risk funds focused on high risk, etc.

A multi-asset strategy is not designed for just one type of investor. You can have a high tolerance for risk or prefer a more conservative approach. There is likely a multi-asset portfolio that aligns with your financial goals.

4. Multi-asset funds may provide consistent returns over time

A multi-asset investment strategy can deliver steadier long-term returns by combining diversification with active portfolio management. These funds spread investments across equities, fixed income, cash, commodities, and alternative assets. This offers a balanced approach that can potentially improve the overall returns over time. Moreover, since they follow a dynamic asset allocation, fund managers monitor market conditions and rebalance the portfolio when needed. They may increase or decrease exposure to certain asset classes at different times to adapt to changing economic conditions.

Multi-asset strategies also aim to generate returns that are less dependent on the performance of traditional stocks and bonds. Because they invest across a broader range of asset classes, their returns have a lower correlation with conventional markets.

Apply the right retirement investment strategy based on your needs

The right asset allocation for retirement planning is different for every individual and depends on your financial goals, risk tolerance, and investment horizon. However, multi-asset funds can be a suitable option for many investors as they cater to a wide range of needs. They also offer retirement portfolio diversification, which is essential for balancing risk. The potential for better risk management, combined with the convenience of professional rebalancing by the fund manager, can make saving for retirement simpler, time-saving, and more disciplined.

If you are unsure whether a multi-asset investment strategy is right for you, consider speaking to a financial advisor. Our financial advisor directory can help you find a suitable financial advisor near you who can help create a personalized multi-asset strategy in your retirement plan.

Frequently Asked Questions (FAQs) about multi-asset investment strategy for retirement

1. What is the multi-asset retirement investment strategy?

A multi-asset retirement investment strategy refers to spreading your money across different types of investments to create a portfolio that balances growth and stability. A typical multi-asset portfolio may include:

Equities: These offer the potential for long-term capital growth but can be volatile.
Fixed-income investments: Bonds and other fixed-income securities can provide regular income at low risk.
Commodities: Investments such as gold can act as a hedge against inflation.
Real estate: Tangible and intangible real estate investments like properties, Real Estate Investment Trusts (REITs), and others can add diversification while offering the potential for long-term appreciation and, in some cases, regular rental income.
Cash and liquid investments: Cash and other liquid assets provide stability and ensure you have funds for emergencies or short-term needs.

2. How can I choose the right multi-asset fund for my needs?

Choosing the right multi-asset fund starts with understanding your financial goals. This can help narrow down the type of fund that best suits your needs. You also need to evaluate your risk tolerance and investment horizon. Additionally, educate yourself about the different types of multi-asset funds available. For example, income funds, target-risk funds, target-date funds, and fund of funds. Compare factors such as the fund’s investment strategy, asset allocation, and the fund manager’s experience.