Multi-asset funds and target date funds

The simplest possible portfolio is one fund, and for a substantial number of investors that produces a better outcome than a self-managed collection.

What they are

Two related products.

Multi-asset funds hold a fixed allocation across asset classes — a range of equity percentages is typically offered — and rebalance internally.

The investor chooses the risk level and holds one thing.

Target date or lifestyle funds additionally adjust the allocation over time, becoming more conservative as a target date approaches.

They are the default in many workplace pension schemes.

What they remove

The decisions.

Selecting individual funds for each asset class.

Deciding the allocation.

Rebalancing, which is behaviourally difficult and mechanically important.

Adjusting risk over time.

And the temptation to interfere, since there is nothing obvious to change.

Which is worth a great deal, since the behaviour gap discussed elsewhere on this site frequently costs more than any difference in fund charges.

The cost

Which is the trade-off.

Multi-asset funds generally charge more than the weighted average of the underlying index funds, reflecting the allocation and rebalancing service.

The difference is typically modest for low-cost providers and can be substantial for others.

Which means the question is whether the discipline and simplicity are worth the difference — and for someone who would otherwise fail to rebalance or would trade reactively, they generally are.

How to assess one

What to check.

The underlying holdings, since a multi-asset fund built from cheap index funds is a different proposition from one built from expensive active funds.

The total cost, including any underlying fund charges.

The equity percentage, since this is the main determinant of risk and is what should match your circumstances.

Geographic allocation, particularly the domestic weighting, which is frequently substantial in domestically marketed products.

Whether bonds are currency-hedged.

Whether the allocation is fixed or actively varied, since some products described as multi-asset are actively managed with changing allocations.

And the rebalancing approach.

Target date funds specifically

Where additional questions apply.

The glide path: how the allocation changes with time, which varies enormously between providers for the same target date.

Whether it glides to a point or through it, meaning whether de-risking continues after the target date.

What the terminal allocation is, which reflects an assumption about how the money will be used — a fund designed for annuity purchase glides differently from one designed for drawdown.

Which is the main limitation: the fund assumes a retirement date and a way of taking the money, and if either assumption is wrong for you, the glide path is wrong.

Where they suit people

The clearest cases.

Anyone who does not want to manage a portfolio.

Anyone who would not rebalance.

Anyone prone to reacting to markets.

Smaller portfolios where multiple funds would incur disproportionate transaction costs.

Workplace pension defaults, where the alternative for most members is no decision at all.

And as a complete solution rather than one holding among several, since combining a multi-asset fund with other holdings reintroduces the allocation decision without the visibility.

Where a self-built portfolio is better

For balance.

Larger portfolios where cost differences matter more in absolute terms.

Investors with specific requirements — tax considerations across accounts, particular exclusions, or an allocation not offered.

Where asset location matters, meaning holding different assets in different tax wrappers.

And investors who genuinely will rebalance and will not interfere, which is a smaller group than believes itself to be.

The common error

Worth naming.

Holding a multi-asset or target date fund alongside several other funds, which defeats the purpose entirely — the allocation of the whole is now unknown, the rebalancing applies only to part, and the costs are duplicated.

If using one, it should generally be the entire portfolio within that account.

And workplace pension defaults are frequently held alongside self-selected holdings elsewhere, producing exactly this problem across accounts.

The honest assessment

Which is unfashionable.

A single low-cost global multi-asset fund, held for decades with regular contributions and no interference, produces an outcome that most self-managed portfolios do not beat.

It is unexciting, requires no research, and generates nothing to discuss.

Which are all features rather than defects, given what the evidence says about investor behaviour.

General information only, not investment advice. Investments can fall in value and past performance does not indicate future returns. Consult a regulated financial adviser.