Investing is often an overwhelming concept that brings novice investors to the point of frustration, but if you master one type of investment or one investment strategy at a time, your confidence grows, and often, so do your portfolios. Mutual funds, whether single or multi-asset class, are an excellent place to begin. But can you have only one asset class in your portfolio?
Mutual funds can be focused on one asset class. The portfolio is still diversified because it includes stocks, bonds, and short-term investments, but you own those investments through a single fund.
The rest of this article will explain a few topics related to this question in great detail, including:
- Mutual funds
- Asset classes
- A single asset class
- Types of single-fund strategies
Let’s dive in and get started, so you can start making more money with your mutual fund.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
Mutual Funds Can Focus on a Single Asset Class
It might be easier to invest in a mutual fund that focuses on a single class asset, particularly for beginners.
In addition, those who have a lot of money to invest might be comfortable designating a portion of their portfolio to a single asset class for several reasons:
- The single-focus mutual fund investment makes you an expert in that particular asset field, so you will know when to hold, when to sell, and when to buy again.
- In a good market for that investment, the single-asset focus may also build confidence for the new investor.
- Mutual funds that focus on a single asset class are sometimes more profitable in the short term than mutual funds that focus on multi-class assets.
However, just because mutual funds can be focused on a single asset class, it does not mean that this is the best or even the safest investment strategy.
You May Not Want To Focus on a Single-Asset Class
Investing in mutual funds that focus on a single asset class might be more profitable than multi-asset mutual funds at points in the market.
For example, the post-pandemic real estate and building markets have shown unanticipated and significant growth. However, if your mutual funds are focused on a single-asset class within the real estate market, the downturn could be sudden and unexpected with a significant loss.
To further explain, let’s say that all of your mutual funds are investments in companies that focus on one asset, such as stocks in real estate companies.
In this example, although you may be diversified because your mutual fund is invested in several companies, you are at high risk if there is a downturn in the market because you do not have other asset classes that can absorb the loss.
By investing in mutual funds that focus on multi-asset classes, you can protect yourself against market volatility.
The decision is primarily based on your risk tolerance and the amount of attention and control you want to invest. Either strategy can prove profitable, but you must know your objectives and the market before deciding.
A good resource book dealing with this subject is available on Amazon.com for readers who would like to become self-educated in investment fundamentals:
Foundations of Investment Management by David E. Linton.
We like Linton’s book because it is reader-friendly and includes real-world examples.
He also uses the latest academic research using several co-authors for crucial chapters in his book. Although it is written for people who plan to start a career in finance where they will be working with clients, it is good information for anyone who wants to know how to manage their own investments as well.
What Are Asset Classes?
Investments are grouped by an asset class so that the funds have comparable characteristics and comply with the same, or at least similar, laws and government regulations.
Each asset class in the mutual fund reflects a different level of risk/return and reacts differently to various stimuli, such as news reports, social developments, or global events. Volatility is the main reason that single-asset class mutual funds are sometimes questioned.
The money used to invest in mutual funds comes from a group of investors who have similar investment objectives. These objectives may be growth, income, or safety, or a combination of all three.
Asset classes help money managers find a balance for these objectives based on various mutual funds.
What Is a Single-Asset Class?
Let’s begin with the three major classes of assets:
- Stocks
- Bonds
- Cash
A single-asset class can be all stocks, all bonds, or all cash. If you want to invest in stocks as your single-asset class, you can opt to invest in mutual funds that focus on purchasing stock in large, well-known companies over smaller start-up companies.
Another way to use a single asset is to select a mutual fund that focuses on one asset, such as an apartment complex or an RV park.
The portfolio is still considered a value-add opportunity and has cash-flow potential. But in this single-asset model, the investor has some control over the asset, whereas investors have little, if any, control over multi-asset classes.
Another enticing feature of a single asset class, particularly for social investors, is the ability to invest in causes and products that you believe in or want to support.
For example, if you are a proponent of medicinal marijuana or passionate about climate control, your portfolio could be set up on this single asset class and only include mutual funds that focused on companies in those markets.
However, the portfolio would still be diversified because it would hold stocks, bonds, and possibly real estate in those companies.
What Are Mutual Funds?
A mutual fund is a pool of investments ranging from stocks and bonds to real estate and cash. People who invest money in securities like stocks and bonds create a financial portfolio, with mutual funds making up at least a part of each portfolio.
Mutual funds are enticing, particularly to beginning investors and those nearing retirement because diversity lowers overall risk. Therefore, investors and money managers alike find mutual funds a safer way to invest and diversify the investment portfolio.
Simply stated, when you invest in a mutual fund, you own shares in each of the stocks and bonds that make up the mutual fund.
Many novice investors get confused when thinking of a mutual fund as being based on a single asset because the idea seems to be the opposite of what mutual funds are intended to do: diversify.
However, you can still diversify your mutual fund using a single asset class.
Consider a Professional Money Manager
While it is crucial to know your tolerance, risk, and your objectives, you do not have to start your investing journey alone. There are many money managers and financial brokers willing to help you reach your investment goals.
Their minimums and fees vary, and we’ve included links to a few of our favorite brokers below.
- Facet Wealth: There is no account minimum with Facet, and your initial consultation is free. Their monthly fees start at $100 per month.
- Zoe Financial: You need to earn at least $100,000 annually, but there is no account minimum, and commissions vary by advisor.
- Vanguard: This broker requires a $50,000 minimum with a .30% management fee.
Author’s Recommendations: Top Trading and Investment Resources To Consider
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Conclusion
It is certainly possible, and sometimes quite profitable, to invest in mutual funds that are focused on a single asset class. For readers who want to invest with confidence, the safest course of action is to become self-educated in markets and asset classes or hire a professional to manage your portfolio.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
Affiliate Disclosure: We participate in several affiliate programs and may be compensated if you make a purchase using our referral link, at no additional cost to you. You can, however, trust the integrity of our recommendation. Affiliate programs exist even for products that we are not recommending. We only choose to recommend you the products that we actually believe in.
