ASSET ALLOCATION

At first glance, "asset allocation" sounds like a technically complex term but the concept is really quite simple. It refers to how you divide your investable assets among various options including stocks, bonds, real estate, and cash.

Why is this important? Let's consider two examples. A 25-year-old worker who wants to retire a millionaire won't get very far putting all of her money into a bank savings account earning 2% per year. And a 90-year-old retiree certainly wouldn't sleep very well at night knowing his retirement portfolio made up solely of aggressive stocks could suffer major drops in value, which stocks did recently during the bear market of 2000-2002.

Asset allocation is the process of dividing your assets among stocks, bonds, real estate, and cash in a way that fits your financial goals, risk tolerance, and time horizon. Younger workers with decades until retirement and who plan to work for many years can afford to be more aggressive, with a higher percentage of their portfolio in stocks and high-yield bonds. Middle-aged workers approaching retirement and college funding for their children will likely opt for a more conservative approach, with higher portions of their portfolio invested in bonds, real estate, and cash. Retirees who can't afford to risk the volatility of the stock market and living on a fixed income will likely focus on bonds and cash.

Diversifying your funds among different types of investments is an important way to minimize your investment risks. It can also play a large role in the return you can expect. The objective of any asset allocation plan should be to find the asset mix that provides the appropriate combination of expected return and expected risk that will allow you to pursue your financial goals. Choosing the optimal asset allocation for your investments can be pose serious challenges, however.

What may be appropriate for one investor may be entirely inappropriate for another of the same age, income, and wealth - if only because of their tolerance for risk. And the asset allocation that might be right for someone who desires a simple lifestyle might be wholly wrong for someone who dreams of making their retirement truly their "golden years."

We can guide you through the asset allocation process and help you choose the mix of assets that can help you achieve financial goals, whether short, intermediate, or long term.