Mixed funds simply explained: is it worth investing?

They are advertised as an all-round carefree package, iHow profitable are mixed funds really? We explain how the investment works and what its advantages and disadvantages are.

It doesn’t sound bad at first: buy a product, get multiple asset classes. That is the concept of mixed funds. They are often advertised to beginners in particular because they do not need a lot of time or start-up capital for this type of investment. But do mixed funds really make sense? We clarify the most important questions.

What is a mixed fund?

Mixed funds are mutual funds that you use in Invest in stocks and bonds (also called bonds) at the same time. The idea behind it: losses in one asset class should be offset by income in another – directly within a fund.

So you don’t have to put together equity, bond or bond funds yourself, you have both with a mixed fund. Whether the equity or bond component is larger in a mixed fund depends on the underlying strategy.

For example, if you are willing to take more risks in order to potentially reap higher returns, also called yield, you would choose a mixed fund that weights stocks more heavily. If you prefer to drive a little more safely and are prepared to accept a lower return, mixed funds with a larger bond component are in the market Portfolio the better choice.

In addition to these classic mixed funds, there are so-called flexible mixed fundsthat may include other asset classes – for example real estate and commodities. The fund manager can change the weighting between the various asset classes at short notice. For example, if share prices fall, he could shift your money into real estate. If the gold price rises, it will divert part of your assets there.

As with all investment funds, the same applies to mixed funds: You don’t have to buy the securities individually – because the fund is already a basket of many individual securities. Mixed funds are also called multi-asset funds because they consist of several so-called assets. Asset is the English word for asset class, also called asset class.

Are mixed funds a sensible investment?

Mixed funds seem to be several advantages To have: They are designed to reduce the dangers of riskier assets like stocks through less risky asset classes like bonds be balanced – and that within a product. The fund assets are also considered to be special assets. Even if the fund company were to go bankrupt, your money would be protected.

Indeed: There are also other types of investments that are classified as special assets and that are cheaper to get away with. What us to that decisive disadvantage of mixed funds: their costs.

According to the consumer advice center in Bremen, the mixed funds actively managed by a fund manager start at 1.5 percent per year and in some cases are well over two percent. The various asset classes in particular make it difficult to manage the fund.

In addition, there are often the costs of buying fund units, the so-called issue surcharge. This is usually between 3 and 6 percent. All of this ultimately reduces your return on investment. However, there are also offers that do not require a front-end load.

The best thing that speaks in favor of a mixed fund is that you as an investor do not need to worry yourself because the fund manager takes care of everything. You should only rely on mixed funds if this convenience is worth the comparatively lower return to you.

Important here: Mixed funds are only suitable for long-term investments. This means that you should be able to sit out fluctuations and thus compensate for short-term losses in the long term. Mixed funds are not ideal for those who need short-term funds.

Overview of advantages and disadvantages

advantages disadvantage
You can easily invest in several asset classes at the same time. Mixed funds are actively managed and therefore cost a lot.
With mixed funds, both offensive and defensive investors will find the right product. Active mixed funds often fail to achieve the performance targets they have set themselves.
You don’t need to worry yourself, a fund manager will take care of everything for you. If the proportion of stocks and bonds cannot be changed flexibly, this can reduce your return.
The fund assets are considered to be special assets. Not suitable for short-term investments.

What should you consider when buying?

If you want to invest in a mixed fund despite the costs, you should proceed with caution. “If you read an offer and think that it is a great fund, then just don’t buy it right away,” advises Christian Exner from WBS Hünicke Vermögensverwaltung GmbH in Düsseldorf. He recommends that Read through the fund factsheet in peace and to consider whether the fund actually suits your own investment behavior.

“It is also important to look at how the fund has developed over the past three to five years,” said Exner. What returns were achieved, how stable was the fund in weak market phases? “The more consistent a fund is in its development over a longer period of time, the better it is for the investor,” emphasizes Exner. However: the historical development gives at most one indication, but never a guarantee for the future.

Investors should also watch out for that over the years always the same fund manager was responsible. “If this is the case, then this is a good sign,” says Exner. It shows that long-term thinking is being pursued and that the fund is pursuing a fixed strategy. It is less positive when the fund manager changes constantly – “A change always brings change, possibly a new strategy and thus ultimately also a bit of uncertainty,” explains the financial expert.

Which is better: mixed funds or ETF?

According to the consumer advice center, mixed funds manage to outperform a comparable financial product at most in phases. This is the conclusion reached by the latest study of actively managed funds by the “Finanztest” magazine (issue 06/2020) by Stiftung Warentest. Many products therefore lagged behind their benchmark index. This means that they failed to achieve their goal of outperforming the overall market.

The testers were particularly disappointed by the flexible mixed funds. In the flexible mixed funds group with a global investment portfolio, only 14 percent of the funds were able to convince. It would have been better for investors if they had an ETF (“Exchange Traded Fund”) on the international index MSCI World invested.

ETFs are special equity funds, i.e. a collection of many different stocks that use a computer algorithm a stock index like the MSCI World or the Dax. The value of ETFs therefore always develops in the same way as the index that they track. Because you have these index funds too low costs get that Return on ETFs in the end often higher than with traditional investment funds.

Economist and investment advisor Gerd Kommer has a particularly clear opinion on mixed funds. In his book “Sovereign Investing with Index Funds & ETFs” he writes: “Mixed funds are a sad forced marriage made up of an equity fund and a bond fund, marketed as a love marriage. Investors are almost always better off buying equity funds and bond funds individually.

Above all, Kommer criticizes the “unclear Wischi-Waschi investment strategy” of flexible mixed funds, which is based on the fact that fund managers try to foresee the best time to buy and sell the asset classes – a strategy that science has revealed as pure luck.

And further: “The fee level of mixed funds relative to a 50/50 combination of equity and bond ETFs is particularly unsavory. This fee ratio is even more unfavorable than for pure equity funds or bond funds, because mixed fund investors also pay the high equity fund fees Bond part pays. ”


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