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. 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%.
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.
