A Guide to Growing and Managing Your Invest Part 2

 

2. Review and Adjust Your Asset Allocation

What Is Asset Allocation?

Asset allocation refers to how you divide your investments among different asset types — such as stocks, bonds, and cash — based on your financial goals, time horizon, and risk tolerance. This decision plays a major role in your portfolio's performance over time.

And remember: there’s no one-size-fits-all strategy. The right allocation for you depends on factors like your age, goals, risk tolerance, and investment timeline.

The Role of Age and Timeline

  • Younger Investors (20s to early 40s)
    Time is your biggest advantage. With decades ahead, your portfolio has time to recover from market dips and benefit from long-term growth. You can typically afford to take on more risk.
    A common rule of thumb: 80% stocks and 20% bonds — aiming for higher returns over time.

  • Approaching Retirement or a Major Goal
    If you’re nearing retirement or planning for a big expense like buying a home, your risk tolerance may decrease. You’ll likely want a more conservative allocation, focused on preserving what you’ve built.
    A mix like 40% stocks and 60% bonds might offer peace of mind with modest growth potential.

Why Diversification Matters

Another key concept to keep in mind: diversification. It’s the classic “don’t put all your eggs in one basket.”
Even if you’re stock-heavy, don’t concentrate in just one sector (like tech) or region (like only U.S. companies). Spread your investments across industries, countries, and asset classes. This helps reduce overall risk — if one area underperforms, others may balance things out.

Make It a Habit

Think of asset allocation as the backbone of your investment strategy. Get it right — and keep it updated — and you’ll set yourself up for long-term success.
Set a reminder to review your portfolio at least once a year. Markets shift. Your goals and life circumstances evolve. Your strategy should too.

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