What Is Multi-Asset Investing?

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DEFINITION

Multi-asset investing involves holding two or more different types of assets in a portfolio, such as stocks, bonds, gold, or real estate.

Definition and Example of Multi-Asset Investing

Many investors benefit from multi-asset investing. This means diversifying investments across multiple asset classes. The most common example is balancing stocks with bonds. Even though bonds are traded similarly to stocks, they're very different assets. They have different risks and typical performance trends. By buying both stocks and bonds, you can practice multi-asset investing.

How Multi-Asset Investing Works

There are several different ways you can carry out a multi-asset investing plan. Stocks and bonds make up the bulk of most portfolios, but you can also invest in:

A truly diversified multi-asset portfolio will have a mix of many of these assets. You might even decide to invest in all of them. Any asset could outperform or underperform the others at any given time, and a well-diversified investor can handle any scenario. Having a diverse multi-asset portfolio can protect against volatility and major market swings.

It isn't difficult to diversify across asset classes. Most brokerages offer a wide range of assets for trading. You don't need to go out and buy a physical bar of gold, for instance, because you can simply purchase a gold-backed ETF. No matter what type of asset you're hoping to add to your portfolio, there's probably an ETF, mutual fund, or some other security that can give you that exposure.

Multi-Asset Investing Products

Investors can follow a multi-asset investing strategy on their own by diversifying their holdings as they see fit. However, they can also let professionals handle the (sometimes tricky) task of deciding how many funds to put toward which assets. Consider these two popular multi-asset investing products: target-date mutual funds and target-allocation mutual funds.

Target-Date Mutual Funds

A target-date mutual fund is designed to grow and protect the earnings based on the year in which you expect to begin making withdrawals. They often have names containing the target year, like the Fidelity Freedom 2055 Fund. These funds are commonly used for retirement or college savings plans.

Most often, a target-date fund will begin aggressively with mostly stocks. Then it will gradually shift to safer and more stable investments as the target year approaches. At that point, the fund focuses mostly on providing fixed income.

Target-Allocation Mutual Funds

Most mutual fund companies offer a selection of funds geared toward your risk tolerance. You pick how much risk you want to assume, and the mutual fund diversifies your assets accordingly. If you don't mind significant risk, you may end up with a stock-heavy portfolio, but if you prioritize safe investments, you may end up with a bond-heavy portfolio. Unlike target-date funds, these levels of diversification are set and won't significantly change over the years.

Pros and Cons of Multi-Asset Investing

Pros
  • Diversification

  • Protects against heavy losses

Cons
  • May miss opportunities for gains

  • Higher management fees

Pros Explained

  • Diversification: Multi-asset investing is an easy way to achieve diversification and all of the benefits that come with a diverse portfolio.
  • Protects against heavy losses: By spreading your investments across multiple assets, you can benefit from gains in all of those asset classes without exposing yourself too heavily to the risks associated with them. One asset's value can tank; as long as you're properly diversified, it won't wipe out your entire portfolio.

Cons Explained

  • May miss opportunities for gains: A multi-asset mutual fund will not perform as well as most stock funds in most years, because it will likely contain bonds, cash, and other assets that might not earn the same returns. Fixed-income assets, like bonds, aren't usually designed to earn significant gains. If you can tolerate high risk in pursuit of maximum returns, you will likely prefer to invest mostly in stocks.
  • Higher management fees: Target date and target allocation funds often have higher management fees than funds containing a single asset. That is because the funds are usually actively managed by a professional rather than passively tracking a stock index. The time and energy that a manager spends balancing the fund's assets translate into fees can cut into your overall investment returns over time.

Key Takeaways

  • Multi-asset investing is a strategy in which you diversify your portfolio with two or more different types of assets.
  • Stocks are the most common asset class to hold in a portfolio, but other common examples include bonds, real estate, gold, and currencies.
  • You can let professionals handle your asset diversification by buying a target-date fund or a target-allocation fund.

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