It is important to note that bonds can also be volatile, particularly in times when credit quality comes under pressure or when interest rates are changing. However, over longer terms, bonds have historically had lower volatility than stocks. The two asset classes can often be correlated in the opposite direction (when stocks go down, many bond sectors tend to rise), so while multi-asset portfolios could have lower returns over the long term than an all-equity index like the S&P 500^® Index—a market-cap weighted index that represents the average performance of a group of 500 large-capitalization stocks—they will usually have lower volatility, too, often resulting in a smoother ride for investors.

Standard deviation is a statistical measure of volatility. The higher the standard deviation, the riskier an investment is considered to be. The chart below shows the returns and standard deviation of returns over a recent period for five different Morningstar Target Risk Indexes that represent various levels of diversification (with a mix of assets that may include stocks, bonds and other types of investments). The baseline is represented by the S&P 500, which shows an annualized return higher than any of the sub-indexes—and a higher standard deviation. All five indexes had lower standard deviations than the S&P 500.

Asset allocation fund choices

Thrivent Mutual Funds offers four different asset allocation funds that range from moderately conservative to aggressive. Although each of the funds has an asset allocation target, the actual allocation can vary depending on the outlook and judgment of the fund managers. The funds are actively managed by a team of more than 140 investment professionals.

For example, Thrivent Moderately Aggressive Allocation Fund (TMAFX) has a target asset allocation of 80% equity securities and 20% fixed income securities, but the actual allocation typically varies somewhat as the Fund manager makes adjustments in the holdings to react to changing market and economic conditions.

This Fund typically invests in more than a dozen different asset groups. The largest group is domestic large-cap stocks, which typically accounts for over a third of the Fund’s total assets. The Fund also invests in several other equity groups, including international, small-cap and mid-cap. Bonds and other debt instruments make up the balance of portfolio assets, led by securitized debt, investment grade credit, short-term bonds and cash and government bonds. Other bond instruments include high yield bonds, floating rate bank loans and international debt.

The diversification of these asset allocation funds makes them less volatile than the performance of a single equity category, such as a fund that invests primarily in mid-cap stocks. Although the more conservative portfolios would tend to have lower potential returns over the long term, their losses tend to be more modest and less frequent than the more aggressive investments, and they tend to have lower volatility.

Gauging relative volatility and risk

To gauge relative volatility, investors often use a metric known as beta. Beta is a statistical measure of the volatility, or market risk, of an investment compared to a benchmark. The lower the beta, the lower the volatility of the investment compared with the benchmark.

The S&P 500 Index is considered a beta baseline, with a beta of 1.0. Anything over 1.0 is considered more volatile or risky than the market and anything under 1.0 is considered less volatile and less risky. For example, over a recent three-year period through March 31, 2024, Thrivent Moderately Aggressive Allocation Fund – Class S had a beta of 0.82, which indicated that it was 18% less volatile than the S&P 500 Index during that period.

In addition to the Thrivent Moderately Aggressive Allocation Fund, Thrivent also manages three other asset allocation funds, giving investors with moderately conservative to aggressive risk tolerances the opportunity to choose a portfolio suited to their objectives and threshold for risk:

• Thrivent Moderately Conservative Allocation Fund (TCAIX). The target allocation for this fund is 57% fixed income securities and 43% equity securities. While this fund would probably trail the market and the other Thrivent asset allocation funds during a strong bull market, it would typically be the least volatile, with the lowest risk, during rocky periods in the market. Over a recent three-year period through March 31, 2024, the Thrivent Moderately Conservative Allocation Fund – Class S has had the lowest beta of the group at 0.56, which indicates that it was 44% less volatile than the S&P 500 Index.

• Thrivent Moderate Allocation Fund (TMAIX). This fund’s target allocation is 65% of assets in equity securities and 35% in fixed income securities. Over the recent three-year period through March 31, 2024, the Thrivent Moderate Allocation Fund – Class S has had a beta of 0.72, which indicates that it was 28% less volatile than the S&P 500 Index.

• Thrivent Aggressive Allocation Fund (TAAIX). This fund is geared to investors who want most of their assets in the stock market, but still prefer some diversification to offset the volatility of the market. The target allocation of the fund is 95% of assets in equity securities and 5% in fixed income securities. Over a recent three-year period through March 31, 2024, the Thrivent Aggressive Allocation Fund – Class S had the highest beta of the asset allocation fund group at 0.90, which indicated that it was 10% less volatile than the S&P 500 Index.

Thrivent Mutual Funds has more than 20 mutual funds spanning most major asset classes to help investors build diversified portfolios.

Although asset allocation funds cannot shelter you entirely from the ups and downs of the market, they can lower your exposure to the stock market and help reduce the volatility of your own portfolio over the long-term.

Learn more about Thrivent Asset Allocation Funds.

Asset Allocation Fund Risks: The value of the Funds is influenced by a number of factors, including the performance of the broader market, the effectiveness of the Adviser’s allocation strategy, and risks specific to the Funds’ asset classes, market cap groups, investment styles, and issuers. Debt securities are subject to risks such as declining prices during periods of rising interest rates and credit risk, or the risk that an issuer may not pay its debt. The Adviser's assessment of investments may prove incorrect, resulting in losses or poor performance. The Adviser is also subject to actual or potential conflicts of interest. These and other risks are described in the prospectus.