What is an asset allocation model?

An asset allocation model helps investors understand the potential returns from portfolios with varying allocations to stocks and bonds, plus cash. Each type of security offers contrasting advantages and disadvantages. History tells us that over the long run stocks have a higher rate of return than bonds.

How does the asset allocation tool work?

Our asset allocation tool shows you suggested portfolio breakdowns based on the risk profile that you choose. We use historical returns and standard deviations of stocks, bonds and cash to simulate what your return may be over time. We use a Monte Carlo simulation model to calculate the expected returns of 10,000 portfolios for each risk profile.

How do asset allocation funds work?

The fund manager typically allocates a specific percentage of the fund's assets to each asset class, and then rebalances the portfolio on a regular basis to maintain the desired allocation. They're a convenient way to invest in a diversified portfolio of assets. Here are some common types of asset allocation funds: Target-date funds.