Asset Mix

What Is Asset Mix?

The asset mix is the breakdown of all assets within a fund or portfolio. Broadly, assets can be assigned to one of the core asset classes: stocks, bonds, cash, and real estate. Within that, assets can be mixed even further. An asset mix breakdown helps investors understand the composition of a portfolio and a diversified asset mix reduces the risk of investing.

Understanding Asset Mix

The investment world has a wide array of financial products to choose from, all with their own benefits and risks. Investors can decide how they would like to invest their capital; whether they want to be concentrated in one asset, such as stocks, or if they would like to have an asset mix, investing in a variety of assets, thereby increasing their potential for returns as well as reducing their risk, a strategy known as diversification.

For an investment fund, asset mix breakdowns are one aspect of regular investment reporting. Fund managers provide investors with detailed percentages invested by each asset category in the portfolio. For example, they may invest 30% of a fund's assets in bonds, 50% of assets in stocks, and 10% in real estate. The market value of investments from each asset category is represented as a percentage of the total portfolio. Thus, the comprehensive mix of assets will equal 100% and show the breakdown of investments across the entire portfolio.

The asset mix of a portfolio is an important consideration for investors. It can be a key determinant of the risk/reward profile of the fund. It can also provide insight into the long-term performance expectations.

Asset Mix Variations

Investors view funds by their investment holdings, which may be concentrated in a core asset class such as equity or fixed income. Other asset categories for investment may include commodities or international investments.

When an investment fund is highly concentrated in one asset class or category its asset mix will likely be more detailed at a granular level. For example, the asset mix of an equity fund may report investment percentages in large-cap, mid-cap, and small-cap stocks.

If it is an international equity fund, the standard asset mix breakdown may be more focused on the percentage of market value invested by country. For fixed-income funds, investors will typically see asset mix breakdowns by credit quality or duration percentages.

Investors do not have to invest in funds to mix their assets; they can do this in their own portfolios as well by choosing different types of assets. For individual investors, it is important to have an understanding of the financial products they are investing in as well as doing research on the outlook of those investments.

Asset Allocation Funds

Investors will generally find more traditional asset mix breakdowns by asset class in asset allocation or balanced funds. These funds often advertise the asset mix of the portfolio for investors. The T. Rowe Price Balanced Fund is one example. The Fund is managed to invest approximately 65% of its total assets in common stocks and 35% in fixed-income securities.

Other popular types of asset allocation funds include target-date funds. These funds follow a glide path that shifts their asset mix at various points along a timeline, managing for a target utilization date. The Vanguard Target Retirement 2060 Fund is one example. The Fund begins with an asset mix focusing on stocks whereby at every target date it will reduce its exposure to stocks and increase its exposure to bonds. The fund has been created for individuals that plan to retire between 2058 and 2062.

Determining Asset Mix

Across the industry, portfolio managers use many different methodologies to determine the asset mix of a portfolio. Modern portfolio theory provides a basis for analyzing investments and determining appropriate allocations based on risk preferences and risk management objectives.

Asset allocation portfolios are a blend of both equity and fixed income asset classes. The historical risk and return of these two asset classes show equities providing greater potential for higher returns along with higher risks.

Historically, fixed income allocations have provided lower comparable returns also with lower risk. The balance of risk and potential return through the use of both equity and fixed-income investments overall is a guiding principle in determining the asset mix of an investment portfolio.