With increasing globalization and advancement in technology, investors today have access to a wider range of asset classes and investment vehicles across the world. Cross fund investing provides the advantages of diversification and flexibility by allowing investors to allocate capital across different fund types, asset classes, geographies and strategies. By spreading out investments and not limiting to just one asset category or region, investors can aim to optimize risk-adjusted returns as well as tailor investments to match their specific goals and risk appetite.
Greater Diversification Reduces Risk Through Low Correlation
Investing in multiple asset classes with low correlations allows for more effective diversification and risk reduction in a portfolio. For instance, combining investments in stocks, bonds, real estate and alternatives like private equity can balance market risk across business cycles. Geographic diversification also reduces concentration risk and market-specific risks. Spreading investments across equity funds focused on U.S., international developed markets and emerging markets provides wider exposure. Currency diversification through global bond funds in local currencies further decreases portfolio volatility.
Access to Specialist Expertise For Each Asset Class
Investing across different fund types grants investors exposure to specialist management expertise for each asset category. For instance, investing in a technology mutual fund gains access to managers highly knowledgeable about tech stocks. A global bond fund provides expert oversight for fixed income securities across many countries. This depth of proficiency for each asset class would be difficult to replicate with a single fund manager.
Flexibility To Match Varying Investment Objectives
The flexibility to allocate capital across various funds allows investors to shape their portfolio to match specific objectives, which may differ across individuals or change over an investor’s lifespan. A young investor with a long horizon may overweight equity funds for growth. An investor nearing retirement may favor bond funds for income and capital preservation. As life circumstances and goals evolve, the investment mix can be adjusted accordingly simply by rebalancing fund allocation.
Enhanced Liquidity Compared to Direct Asset Ownership
Investing through funds provides greater liquidity compared to owning assets directly. Fund shares can be quickly sold on exchanges at fair market prices. In contrast assets like real estate, infrastructure and private companies have low liquidity and lack organized exchanges for trading. Funds greatly improve the liquidity of these asset classes, allowing investors to gain exposure while retaining ability to rebalance.
In today’s interconnected world with a growing variety of investment options, cross fund investing opens up the benefits of diversification, expertise, flexibility and liquidity. Investors should look to incorporate a range of fund types across asset classes, regions and strategies to optimize their overall portfolio.