What allocation is right for you?
Asset allocation decisions involve tradeoffs among 3 important variables:
- Your time frame
- Your risk tolerance
- Your personal circumstances
Depending on your age, lifestyle and family commitments, your financial goals will vary. You need to define your investment objectives—buying a house, financing a wedding, paying for your children's education or retirement. Besides defining your objectives, you also need to consider the amount of risk you can tolerate.
For example, when you retire and are no longer receiving a paycheck, you might want to emphasize bonds and cash for income and stability. On the other hand, if you won't need your money for 25 years and are comfortable with the ups and downs of the stock market, a financial advisor might recommend an asset allocation of 100% stocks.
Sample asset allocations
Here are examples of 3 model portfolios that can give you a sense of how to approach selecting your own asset mix. Remember, these are general suggestions only. When reviewing the sample portfolios, consider your risk tolerance and your other assets, income and investments.
Aggressive portfolio. This portfolio emphasizes growth, suggesting 65% in stocks or equity funds, 25% in bonds of fixed-income funds and 10% in short-term money market funds or cash equivalents. Investment experts recommend this portfolio for people who have a long investment time frame. The portfolio provides for short-term emergencies and a mid-term goal such as building a home, but otherwise assumes the investor has long-term goals such as retirement in mind. |