Mutual Fund Portfolio Examples for 3 Types of Investors

Investor stacking coins indicating he is investing money into his mutual fund portfolio
•••

acilo / Getty Images

Investors tend to come in three main 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 unique amount of risk they can handle.

With that in mind, you'll tend to move toward 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. The time horizon is the length of time before you want your money returned. Generally, this is longer than 10 years for those with 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, you'll 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, you'll 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% in a large-cap stock fund (like an index fund).
  • Put 15% in a mid-cap stock fund.
  • Another 15% should go to a small-cap stock fund.
  • Set 25% in a foreign or emerging market stock fund.
  • Invest the last 15% in an intermediate-term bond fund.

Aggressive portfolios work best for you if you're 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% to 10% rate of return over time. In its best year, it might gain 30% to 40%. In its worst year, it could decline by 20% to 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, you'd 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% in a large-cap stock fund (like an index).
  • Put 10% in a small-cap stock fund.
  • Another 15% should go into a foreign stock fund.
  • Set 30% in 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% to 8%. Its best yearly gain might be 20% to 30%, and its biggest decline in a year may range from 20% to 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. You'll 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% in a large-cap stock fund (like an index).
  • Put 5% in a small-cap stock fund.
  • Another 5% should go into a foreign stock fund.
  • Set 45% in 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.

Frequently Asked Questions (FAQs)

What are the benefits and disadvantages of investing in mutual funds?

Mutual funds can help you build a good portfolio balance, but they aren't the only way. You can achieve the same exposure with plenty of other investment products. A couple of the benefits of investing in mutual funds are that they are professionally managed and diversified. This makes it easy to invest, and it builds in some protection against volatility. However, investors who prefer to minimize management fees or have closer control over their investments may see those as disadvantages. Mutual funds also don't trade like stocks or exchange-traded funds (ETFs), and this means you can't trade mutual fund shares throughout the day as you please.

What are the costs associated with investing in mutual funds?

If the mutual fund you invest in is a no-load fund, then the only cost of investing can be found by looking up the expense ratio. This is a percentage of the fund that the company keeps as payment for managing the fund. In general, actively managed funds have higher expense ratios than passively managed index funds, and in general, they range from 0.015% to 1% or more. Some mutual funds also have sales loads that are charged when buying or selling shares (depending on their structure). Keep in mind that your brokerage may also charge you fees associated with buying or selling mutual fund shares.