Picking when to get into stocks, bonds or alternatives is no easy feat. Market timing is notoriously difficult at the best of times but many think of it in the context of equities: when should I buy UK stocks or sell my US companies?
Now imagine trying to get the mix of assets right as well and it is easy to see how DIY investors can go disastrously wrong.
Sometimes investors can be overwhelmed by the choices on offer. Yet in investing, like many aspects of life, perhaps the simplest answer is also the most practical solution.
Multi-asset funds were designed to be a one-stop shop for savers who want to put their money to work but had no clue as to how to navigate financial markets. These funds typically invest in three core areas – equities, bonds and alternatives.
Research this week from Aegon Asset Management highlighted the fickle nature of markets, showing how varying asset class returns can be in each calendar year over the past decade.
It is a chart I have written about before, but thought worth mentioning again this time around for the inclusion of a multi-asset fund.
The fund selected in the below chart sits in the IA Mixed Investment 20-60% Shares sector, the second lowest risk multi-asset sector based on the potential amount the funds can hold in equities.
In theory therefore, investors would expect the returns to be far behind equities – given that this is the area that should make the most money over the long term. And this is true. Annualised returns over the 10-year period are far behind global equities.
But that is not the full story. Looking back over the past 10 calendar years, it shows that, more often than not, multi-asset funds can be in the top half of the performance ranking, beating global equities several times over the decade.
It also highlights that the annualised return matches the returns of UK stocks, while its risk-adjusted returns (the amount of potential loss versus potential gain) is pound for pound the same as global stocks.
In other words, although the returns have been lower, the volatility has also been dampened, meaning investors had a much smoother ride.
Source: Aegon Asset Management
The fund in question is the Aegon Diversified Monthly Income fund, which has been the seventh best performer over the past decade in its 104-fund strong sector.
Some may argue therefore that these figures do not represent the average fund and would require investors to pick one of the top performers – something which is incredibly hard to do without the benefit of hindsight.
Yet its five-year numbers are much closer to average. Even only looking over the past five calendar years, the portfolio has been above average in all apart from 2020, when Covid caused myriad issues for fund managers.
At my age (31 at the time of writing), I am in the somewhat advantageous position of only needing to put my money into equities. Most of my savings are for the long term, either retirement or as part of a rainy day fund that hopefully will remain untouched for several years.
But as I get nearer retirement (or needing the money for other reasons) and diversification and asset class selection becomes a much larger consideration – as will protecting my hard-earned savings – I will seriously consider moving my money to a multi-asset fund.