Managing Volatility Through Diversification
American Funds Insurance Series offers Investment Fundamentals videos for institutions. The spotlight is on AFIS’ Asset Allocation Fund, which provides investors with a balanced and adaptive investment strategy.
You’re watching Investment Fundamentals by American Funds. Simple fund facts that make it easier to talk about investments.
Stock market fluctuations are inevitable. And riding all those peaks and valleys can make some investors uncomfortable – especially those planning for retirement.
A diversification strategy can help reduce volatility by spreading investments across a broad mix of assets – including bonds and cash. Diversification is all about balance.
Over the past 27 years, the average balanced fund has provided 80% of the return of an all-stock portfolio with 37% lower volatility. These findings are based on monthly returns from August 31, 1989 to June 30, 2016.
Still, finding an effective mix of assets can be daunting for investors who seek growth but worry about volatility.
To help investors with diversification, the investment professionals at American Funds Insurance Series created the Asset Allocation Fund. Five seasoned portfolio managers adjust the allocation of the fund’s assets as market conditions change.
And the fund has achieved an average annual return of 8.11% for Class 2 shares, exceeding its comparable Lipper index return of 7.45%. In other words, the fund’s results were nearly as good as the S&P 500 Index, but with significantly reduced volatility.
American Funds Insurance Series Asset Allocation Fund is just one example from American Funds of how diversification can help reduce volatility. And its history of long-term growth - driven by a diversified investment strategy and attention to risk - can make it a good choice for retirement portfolios.
Watch more Investment Fundamentals or learn about specific funds at americanfunds.com/fundamentals.
Figures shown are past results and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Unit prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. The variable annuities and life insurance contracts that use the series’ funds contain certain fees and expenses not reflected here.If such fees and expenses had been deducted, results would have been lower. For results reflecting contract-level fees and expenses, contact the insurance company that issues your contract or visit its website.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund prospectuses and summary prospectuses, which can be obtained from a financial professional, and should be read carefully before investing. Similar information about collective investment trusts can be obtained from Capital Group or participants’ plan provider or employer.
The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.
Content contained herein is not intended to serve as impartial investment or fiduciary advice. The content has been developed by Capital Group, which receives fees for managing, distributing and/or servicing its investments.
Class 2 shares were first offered on April 30, 1997. Results encompassing periods prior to those dates assume a hypothetical investment in Class 1 shares and include deduction of the additional 0.25% annual expense for Class 2 shares under the series’ plan of distribution.
Annualized standard deviation (based on monthly returns) is a common measure of absolute volatility that tells how returns over time have varied from the mean. A lower number signifies lower volatility.