An asset allocation fund is a mutual fund that diversifies its holdings in stocks, bonds and maybe even other mutual funds. They can also invest in secure offerings such as money market funds, and cash. Most investors would stick with one asset allocation fund rather than three or four other types of mutual funds as the asset allocation funds are diversified as is, it would also save on those load fees.

Some stock allocation funds would invest equally into large cap, mid cap and small cap equities. Some asset allocation funds stick with one set portfolio over time, maintaining the holdings. However, some may change their portfolios over time to adjust to changes in the market.

Like all mutual funds, please read the prospectus before purchasing. Do your homework on the fund to make sure it’s the right one for you. One of my investment strategies with these funds is investing my IRA money into the fund as asset allocation funds tend to be the most stable out of mutual funds.

You can still loose money like any other investment, some specific asset allocation funds offerings are broken down into specific objectives. There are three main types, conservative, moderate and aggressive. As conservative allocation funds may invest in historically sound classes and more aggressive funds may invest in higher risk classes. For full disclosure reasons, I currently own Evergreen Asset Allocation Fund Class A (EAAFX).