Multi-Asset Class: Definition, Fund Types, Benefits

A multi-asset class investment combines more than one asset class—such as equities, bonds, cash, and real estate—into a single portfolio or fund. By allocating capital across different types of assets, these investments aim to reduce volatility and manage risk compared with holding a single asset class.

How multi-asset investments work

  • Diversification: Spreading investments across asset classes reduces exposure to the poor performance of any single class.
  • Trade-off: Diversification typically lowers downside risk but can also limit upside potential when one asset class outperforms.
  • Flexibility: Asset mixes and weights vary by fund and investor objectives; allocations can be static or change over time.

Common fund types

  • Risk-tolerance (asset-allocation) funds
    These are designed to match investor risk profiles (conservative to aggressive). Aggressive funds allocate heavily to equities; conservative funds tilt toward fixed income and cash. Example allocations:
  • Aggressive: ~85% equities, 15% fixed income/cash (e.g., Fidelity Asset Manager 85%).

  • Conservative: ~20% equities, larger fixed-income and cash allocation (e.g., Fidelity Asset Manager 20%).

  • Target-date funds
    Allocation shifts automatically based on a target retirement date. Funds with distant target dates are more equity-heavy; those nearing maturity shift toward fixed income and cash for capital preservation. This is useful for investors who prefer a turnkey, time-based glide path.

  • Multi-asset ETFs and actively managed multi-asset funds
    Some ETFs and many mutual funds are structured to hold multiple asset classes and may be actively managed to pursue specific outcomes (growth, income, inflation protection).

Benefits

  • Broader diversification than single-asset or many balanced funds.
  • Potential to limit portfolio volatility and downside risk.
  • Flexibility to pursue specific investment outcomes (capital preservation, growth, inflation protection).
  • Many funds offer automatic rebalancing or glide paths (e.g., target-date funds), simplifying investor decisions.

Considerations and risks

  • Lower potential returns when diversification dilutes exposure to a strongly performing asset class.
  • Fees: actively managed multi-asset funds can carry higher management costs.
  • Allocation overlap: holdings across multiple funds can create unintended concentration.
  • No guarantee: diversification reduces but does not eliminate loss—no asset class outperforms in every period.

Key takeaways

  • A multi-asset class investment blends asset types to broaden exposure and reduce volatility.
  • Fund structures include risk-targeted asset-allocation funds, target-date funds, and multi-asset ETFs.
  • These funds are useful for investors seeking diversified, outcome-oriented portfolios, but they involve trade-offs—especially between risk reduction and potential returns.