Mutual Fund Portfolio Examples for 3 Types of Investors
3 Mutual Fund Portfolio Examples for 3 Types of Investors
A smart way to learn how to build a portfolio of mutual funds is to look at some mutual fund portfolio examples as a guide. In this article we'll share a few basic and simple portfolio structures for three types of investors - aggressive, moderate and conservative.
These portfolio samples may not be appropriate for every investor but they can be used as basic guidelines for building your own portfolio.
Mutual Fund Portfolio Example for an Aggressive Investor
An aggressive mutual fund portfolio is appropriate for an investor with a high risk tolerance and a time horizon longer than 10 years. Aggressive investors are willing to accept periods of extreme market volatility (ups and downs in account value) in exchange for the possibility of receiving high relative returns that outpace inflation by a wide margin.
The reason aggressive investors need to have a time horizon longer than 10 years is because they will have a high allocation to stocks. And if there is a severe downturn in the market, you'll need plenty of time to make up for the decline in value. Put simply, the more allocation to stocks, the longer period of time to invest is appropriate.
Here is an example of 85% Stocks and 15% Bonds by mutual fund type:
30% Large-cap stock (Index)
15% Mid-cap stock
15% Small-cap stock
25% Foreign or Emerging Stock
15% Intermediate-term Bond
Aggressive portfolios are most appropriate for investors in 20s, 30s or 40s because they typically have decades to invest. An aggressive portfolio might average 7-10% average rate of return over time. In its best year, it might gain 30-40%. In its worst year, it could decline by 20-30%. To build your own portfolio, all you need to do is choose the mutual funds to fit the respective categories.
Mutual Fund Portfolio Example for a Moderate Investor
A moderate portfolio of mutual funds is appropriate for an investor with a medium risk tolerance and a time horizon longer than five years. Moderate investors are willing to accept periods of moderate market volatility in exchange for the possibility of receiving returns that outpace inflation by a significant margin.
Here is a moderate portfolio example by mutual fund type: 65% Stocks, 30% Bonds, 5% Cash/MMKT
40% Large-cap stock (Index)
10% Small-cap stock
15% Foreign Stock
30% Intermediate-term Bond
05% Cash/Money Market
Most investors tend to fall into the moderate category, which means they want to achieve good returns but are not comfortable taking high levels of market risk. This moderate portfolio might get an average annualized return of 7-8%. It's best yearly gain might be 20-30% and it's biggest decline in a year may range from 20-25%.
Mutual Fund Portfolio Example for a Conservative Investor
A conservative portfolio of mutual funds is appropriate for an investor with a low risk tolerance and a time horizon from immediate to longer than 3 years. Conservative investors are not willing to accept periods of extreme market volatility and are seeking returns that match or slightly outpace inflation.
Here is a conservative mutual fund portfolio example by fund type: 25% Stocks, 45% Bonds, 30% Cash/MMKT
15% Large-cap stock (Index)
05% Small-cap stock
05% Foreign Stock
45% Intermediate-term Bond
30% Cash/Money Market
The highest gain this portfolio might have in a calendar year might be 15% and the worst decline might range from 5 to 10%.
Keep in mind that all of the information in this article is general in nature and is not intended to be advice for individuals. Expected returns and market volatility can vary, depending upon the specific investments chosen in each individual portfolio.
See Also: Mutual Fund Categories
Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.