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ETF Specialist

A Low-Maintenance ETF With a Balanced Approach

This fund offers diversification and automatic rebalancing at a low cost.

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In economics, it is said that there is no such thing as a free lunch, except perhaps diversification. Typically, one can not achieve higher returns without taking on additional risk. However, if assets are uncorrelated--some rising while others falling--diversification can result in better returns without taking additional risk. For the low cost of about 0.30%, this fund provides a diversified, automatically rebalanced portfolio of stocks and bonds.

Suitability
 IShares S&P Aggressive Allocation (AOA) is a one-stop asset-allocation fund that holds both equities and bonds, with a heavier weighting in equities given its aggressive orientation. It is intended to serve as an investor's core holding, either by itself or paired with a few alpha-seeking active funds. For investors who do not have the time or inclination to research, monitor, and rebalance multiple funds, allocation funds such as this provide a simple and effective solution. The fund invests in eight individual iShares ETFs covering domestic and international stocks and bonds with a larger allocation toward stocks than bonds to reflect its aggressive designation. One criticism of this approach is that because investors often do not research the underlying investments in an allocation fund, the portfolio can sometimes be stuffed with lower-quality funds. That is not the case here, as each of the component iShares products is high-quality and follows a passive, index-based approach.

Michael Rawson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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