Asset Allocation Review



Asset Allocation is a strategy that looks to balance one’s portfolio according to their time horizons, risk tolerance, and financial goals.  The three main asset classes are equities (stocks) fixed income, (usually bonds but annuities are also an option) and cash (money markets, cd’s and other cash accounts). 

The concept of asset allocation is rather simple.  These three asset classes have different levels of risk and return within any given time period. While stocks generally outperform fixed interest-bearing accounts over time, we cannot predict that time frame.

For instance, if you are planning to retire within the next year, and have most of your retirement money in equities and the market takes a hit, you may have to delay your retirement until your account makes up for the losses.  

Effective asset allocation makes sure that your portfolio is balanced so that you have enough in bonds or cash to absorb any downswings in the market without compromising your retirement date.  

On the flip side, someone who has a much longer time horizon before retirement, say 10 years or longer, should have a larger percentage of his or her assets in equity accounts. A longer time horizon allows for the ups and downs of the market.  As we pointed out earlier, the stock market generally does outperform fixed, interest-bearing accounts over time.  Knowing your time horizons is critical to the success of your financial plan.

Risk tolerance also plays a part in asset allocation.  Someone that does not want to see any portion of their savings or investments at risk, will choose to use more conservative strategies such as bonds, cash, and even annuities for retirement income.  

Be sure to include your 401-k, your 403-b or your IRA, and any other retirement savings accounts when discussing the proper asset allocation for your portfolio. 

To get your financial plan on track today reach out to BetterWealth For Women now to discuss your personalized plan.


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