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Diversification through a single fund

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Investing doesn’t have to be complicated. Understanding how to buy a diversified portfolio through a single fund can be a way to simplify your financial life.

Building a diversified portfolio often means owning a number of different funds, each of which focuses on a different asset class or a different style of investing. But that method, which requires investors to choose their own funds and then monitor and adjust the mix over time, may not be for everyone. Some people don’t have the time, some may not feel they have the expertise, while others simply don’t want to have to worry about it. If one of these descriptions sounds familiar, a single-fund strategy may make sense for you.

There are products that can offer an easy-to-manage diversified portfolio in a single fund. These may contain many different asset classes, including stocks, bonds, and short-term investments, which is why they are sometimes called asset allocation funds. While different funds are arranged according to different asset allocations, what they all do is provide you with the opportunity to own a diversified portfolio with just one fund.

Target date funds vs. target allocation funds

There are two common types of single-fund strategies: target date funds and target allocation funds. While they each allow you to own a diversified portfolio through a single investment, it’s worth it to take a moment to understand the different approaches each type takes.

Target date funds

Target date funds are primarily for investors who know the approximate date in the future they expect to retire and will need to begin withdrawing money from their retirement accounts. These funds feature a mix of investments that is professionally managed with a specific target date in mind. When that date is many years away, the fund manager tends to invest more aggressively by concentrating the fund’s assets in higher-risk assets that offer greater potential for appreciation, like domestic and international stocks. As the target date approaches and passes, the mix becomes more conservative, with the manager slowly reducing the portfolio’s exposure to stocks in favor of bonds and money market investments.

At Fidelity, we offer target date funds called Fidelity Freedom® Funds. The underlying investments consist of up to 20 Fidelity mutual funds, with an asset allocation that is actively managed by our portfolio managers, supported by a proprietary methodology for adjusting the funds’ asset mix. Fidelity Freedom Funds® are designed to simplify retirement planning. Just pick a fund that’s managed closest to the date you hope to retire.

Target allocation funds

The primary difference between target date funds and target allocation funds is that while target date funds’ asset allocations are continually shifting in response to n investor’s changing time horizon, target allocation funds’ asset allocations remain constant. For instance, say a fund’s target allocation is 70% stocks and 30% bonds. The fund’s manager will continually make adjustments to the portfolio on an as-needed basis to maintain that asset allocation. So if the value of stocks in the portfolio rises and the value of bonds falls, the manager can liquidate a portion of the stock position and shift the proceeds into bonds to maintain the 70/30 mix. These funds may be a good option for investors who understand their tolerance for risk and how that translates into an asset allocation. One thing to remember though, is that the right asset allocation today may not necessarily be the right one tomorrow. As your time horizon changes, you should continually evaluate your investments to make sure your asset allocation matches your investment objectives.

At Fidelity, we offer a number of different target allocation funds, including Fidelity Asset Manager® Funds. Each maintains an asset allocation containing between 20% and 85% stocks. You simply select the portfolio that best matches your comfort level regard risk, your investment objectives, and your time horizon.

Advantages of single fund strategies

Simplicity and convenience

You don’t have to worry about building or actively managing a portfolio.


Most funds focus on a single investment strategy, so in order to create a diversified portfolio, it’s recommended that you own multiple funds. Single fund portfolios, however, are generally intended to be your only investment. That’s why they consist of a diversified mix of asset types. Remember, diversification does not ensure a profit or guarantee against loss.

Disciplined investment approach

When you’re managing your own investments, it may be hard to stay on track, particularly when markets are volatile. Most fund managers follow a carefully developed investment methodology that can help you stay true to the funds’ investment objectives.

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Related Lessons

  • Why diversification matters

    Diversification is the practice of spreading your investments around so that your exposure to any one type of asset is limited. This practice is designed to help reduce the volatility of your portfolio over time.

  • Types of mutual funds

    Understanding the risks involved with investing and your own tolerance for risk—as well as your desire to involve yourself in the management of your investments—is key to helping you choose the fund or funds that best meet your investing needs.

Mutual funds at Fidelity

  • Mutual funds from Fidelity

    Investing with Fidelity gives you access to over 10,000 funds from hundreds of fund companies, making it easy to find the right funds for any investment need.

  • Research mutual funds

    Use our Mutual Fund Evaluator to search among thousands of funds available through Fidelity, filtering and sorting for a range of performance criteria and fund characteristics, including ratings from Morningstar and other independent experts.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information.  Read it carefully.

You could lose money by investing in a money market fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Fidelity Investments and its affiliates, the fund’s sponsor, have no legal obligation to provide financial support to money market funds and you should not expect that the sponsor will provide financial support to the fund at any time.

Fidelity Freedom Funds are designed for investors expecting to retire around the year indicated in each fund's name. Except for the Freedom Income Fund, the funds' asset allocation strategy becomes increasingly conservative as it approaches the target date and beyond. Ultimately, they are expected to merge with the Freedom Income Fund. The investment risks of each Fidelity Freedom Fund change over time as its asset allocation changes. They are subject to the volatility of the financial markets, including equity and fixed income investments in the U.S. and abroad and may be subject to risks associated with investing in high yield, small cap and, commodity-related, foreign securities. Principal invested is not guaranteed at any time, including at or after their target dates.

Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Sector funds can be more volatile because of their narrow concentration in a specific industry.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.

The Fund Evaluator is provided to help self-directed investors evaluate mutual funds based on their own needs and circumstances. The criteria entered is at the sole discretion of the user and any information obtained should not be considered an offer to buy or sell, a solicitation of an offer to buy, or a recommendation for any securities. You acknowledge that your requests for information are unsolicited and shall neither constitute, nor be considered as investment advice by Fidelity Brokerage Services, LLC., Fidelity Distributors Corporation, or their affiliates (collectively, "Fidelity").