Investors come in three types: aggressive, moderate, and conservative. One factor they all have in common is that a mutual fund portfolio will work for them. Each class has a different amount of risk they can handle and differ in the amount of time they want to spend in the market.
With that in mind, youll tend to move towards the types of investment products and returns that are right for you. The wide world of mutual fund products can offer you returns no matter what your goals are.
Here are some general portfolio samples for each type of mindset. You can use them as a baseline and gain some insights into the basic methods for building a portfolio. They may not be right for everyone, so adjust them as you see fit for your needs and goals.
Aggressive Mutual Fund Portfolio
An aggressive mutual fund portfolio is best for an investor with a higher risk tolerance level and a longer time horizon. Time horizon is the length of time before you want your money returned. Generally, this is longer than 10 years for this mindset.
Aggressive investors are willing to accept extreme market volatility. Market volatility is the up and down price action you see throughout a trading period. This mindset allows for volatility while hoping for higher returns that outpace inflation by a wide margin.
If there is a severe downturn in the market, youll need plenty of time to make up for the decline in value. In short, the more stocks you have, the longer an investing period you should have.
If this is you, youll need to have a time limit of longer than 10 years to invest so that you can have a higher allocation of stocks and riskier investments. This time frame gives your assets time to recover from falling prices.
Here is an example of a portfolio with an 85% stock and 15% bond allocation by mutual fund type for an aggressive investor.
- Place 30% into a large-cap stock fund (like an index).
- Put 15% into a mid-cap stock fund.
- Another 15% should go to a small-cap stock fund.
- Set 25% into a foreign or emerging market stock fund.
- Invest the last 15% into an intermediate-term bond fund.
Aggressive portfolios work best for you if youre in your 20s, 30s, or 40s. This is because you have a few decades to invest and recoup any losses from market swings.
An aggressive mix might average a 7%â€“10% rate of return over time. In its best year, it might gain 30%â€“40%. In its worst year, it could decline by 20%â€“30%. To build your portfolio, you should choose the mutual funds to fit the mix or adjust them as needed.
Moderate Investor Mutual Fund Portfolio
A moderate portfolio of mutual funds is best if you have a medium risk tolerance and a time limit of longer than five years. In this case, youd be willing to accept some market volatility in exchange for returns that outpace inflation.
Here is a moderate portfolio example of a mutual fund type which includes 65% stocks, 30% bonds, and 5% cash or money market funds.
- Place 40% into a large-cap stock fund (like an index).
- Put 10% into a small-cap stock fund.
- Another 15% should go into a foreign stock fund.
- Set 30% into an intermediate-term bond fund.
- Invest your last 5% in a cash or money market fund.
This moderate portfolio might get an average annual return of 7%â€“8%. Its best yearly gain might be 20%â€“30%, and its biggest decline in a year may range from 20%â€“25%.
Most investors tend to fall into the moderate mindset. If this is you, it means you want to achieve good returns but are averse to taking high levels of market risk.
Conservative Investor Mutual Fund Portfolio Example
A conservative portfolio of mutual funds is best if you have a low-risk tolerance. Youll also need a time horizon that extends past three years. Conservative investors are not willing to accept periods of extreme market volatility and seek returns that match or slightly outpace inflation.
Here is a conservative mutual fund portfolio example by fund type with 25% stocks, 45% bonds, and 30% cash and money market funds.
- Place 15% into a large-cap stock fund (like an index).
- Put 5% into a small-cap stock fund.
- Another 5% should go into a foreign stock fund.
- Set 45% into an intermediate-term bond fund.
- Invest your last 30% in a cash or money market fund.
The highest gain this portfolio might have in a year might be 15%. In a bad year, it might decline from 5% to 10%.
The Help of a Financial Advisor
Keep in mind that all investors are different. Even if you fall into one of these three broad categories, your situation may differ from others. Working with a financial advisor is one of the best ways for new investors to enter the markets. Returns and market volatility can vary and depends upon the way you have built your portfolio.
Find us at the office
Exel- Frazzitta street no. 61, 44925 Kingston, Norfolk Island
Give us a ring
+23 274 947 142
Mon - Fri, 10:00-21:00