Can one fund ever be enough?

7 min read 29 Mar 22

When it comes to investing, managing risk is all important. It can be wise to spread your money over a range of different assets, so that all your eggs aren’t in one basket. So surely it follows that investing in just one fund could leave you over-exposed to the performance of a handful of assets or companies? Depending on the fund, this might be true – but it’s not the case for every fund.

Taking a step back, let’s remember why diversification (spreading your money over a variety of different types of investments) can be a good idea in the first place. Above all, it helps to protect you from the ups and downs, or volatility, that every type of asset, like bonds*, equities - shares in a company - and cash for example, can experience.

If you need help with any of the terms used in this article remember you can always take a look at our glossary.

You can never guarantee against investment losses, but if your portfolio is effectively diversified, its value, and the returns you’ll get, will usually be less volatile over the long term. This is because most asset classes have historically tended to perform differently in the same economic conditions. In a well-balanced portfolio, underperforming assets can hopefully be offset by others that have little or no correlation to them. Please remember however, that past performance is not a guide to future performance.

So what about the multi-asset option?

Funds focused on only one asset class will package-up several investments, but the returns they can deliver for investors will always depend on how that type of asset, whether these are equities or bonds, performs over a given period.

Multi-asset funds however look to offer a more rounded investment option, by holding a mix of different types of assets, all in one fund. We consider multi-asset funds to be ‘stand-alone’ funds. This means you can choose to hold them individually, and not necessarily as part of a wider investment portfolio. By contrast, we consider non-multi-asset funds to be ‘building block’ funds, but we’ll explain more about that shortly.

Multi-asset funds can hold assets such as bonds, equities, property or cash, whose performance has historically had little connection to each other, in order to achieve diversification. They might also invest in assets in different countries and currencies to reduce the risk of being too exposed to the fortunes of individual economies when they take a turn for the worse.

Many multi-asset funds are actively managed by expert fund managers and their mix of holdings can be adjusted to respond to market conditions as they change, or even to pre-empt them. In funds where the balance of asset is not fixed, a multi-asset fund manager can act on opportunities where they see them, in certain holdings, countries and currencies to give your investment the best change to perform well.

One of the main attractions of investing in a multi-asset fund is simplicity. With one investment your money is invested in a diversified – and professionally managed – portfolio.

Building block funds vs stand-alone funds

As we’ve already mentioned, multi-asset funds are what we class as 'stand-alone' funds because they spread your money across different asset types so you don't have all your eggs in one basket.

However, funds investing in equities, fixed income and property asset classes alone are what we consider to be 'building block' funds, best held as part of a wider investment portfolio of different asset classes, and potentially spread across different regions and sectors too, to help reduce the risk to your money.

Choosing the right approach for you

While investing in a multi-asset fund might be convenient, it must be right for you and your individual needs. They’re not all the same and carry different risk and return profiles. Some will expose your money to more risks than others but also offer greater potential rewards, and vice versa. Some might focus on delivering a regular income for their investors while others might prioritise growing your money over the long term.

But depending on what you want from investing your money, and the amount of risk you want to take, there might be a multi-asset fund that could offer you a suitably diversified portfolio in one fell swoop.

When you’re deciding how to invest it’s important to remember that past performance is not a guide to future performance and that the value and income from a fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested.

We are not able to give any financial advice. If you’re at all unsure about the suitability of an investment, please speak to a financial adviser. If you don’t already have one, you can find one on our website. The views expressed in this article should not be taken as a recommendation, advice or forecast.

By M&G Investments

The views expressed here should not be taken as a recommendation, advice or forecast.

The value and income from any fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that any fund will achieve its objective and you may get back less than you originally invested. 

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