Mutual Fund Portfolio Examples for 3 Types of Investors
Investors come in three types: aggressive, moderate and conservative. However, one commonality is that a mutual fund portfolio will work for all three investors. The three investor categories have differences in their risk tolerance and time horizons and will tend to gravitate towards different types of investment products and returns. The wide world of mutual fund products has something to offer investors of all types.
These portfolio samples are general in nature and may not be appropriate for every investor. However, they do offer insight into the basic guidelines for building a portfolio.
Aggressive Mutual Fund Portfolio
An aggressive mutual fund portfolio is appropriate for an investor with a higher-risker tolerance level and a time horizon—the time before you need invested sums returned—longer than 10 years. Aggressive investors are willing to accept periods of extreme market volatility—the ups and downs in account value. They allow volatility in exchange for the possibility of receiving higher relative returns that outpace inflation by a wide margin.
The reason aggressive investors need to have a time horizon longer than 10 years is that they will have a high allocation to stocks and riskier investments. 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 the period to invest is appropriate.
Here are examples of an 85% stocks and 15% bonds portfolio allocation by mutual fund type for an aggressive investor.
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 their 20s, 30s or 40s because they typically have decades to invest and recoup any losses they may experience.
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.
Moderate Investor Mutual Fund Portfolio
A moderate portfolio of mutual funds is appropriate for an investor with 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.
Here is a moderate portfolio example by mutual fund type that includes 65% stocks, 30% bonds, and 5% cash or money market funds.
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%. Its best yearly gain might be 20-30% and its biggest decline in a year may range from 20-25%.
Conservative Investor Mutual Fund Portfolio Example
A conservative portfolio of mutual funds is appropriate for an investor with 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 with 25% stocks, 45% bonds, and 30% cash and money market funds.
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%.
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 financial situation may differ from that of others. Working with a trusted financial advisor or accountant is always recommended for those new to investing. Expected returns and market volatility can vary, depending upon the specific investments chosen in each individual portfolio.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.