Asset Allocation
The process of allocating your investments in different asset classes or baskets is Asset Allocation and the essence of diversification. Contrary to popular opinion of the Wall Street crowd, there isn’t a perfect formula for determining the exact allocation of your portfolio. The goal is to allocate your assets so that it closely approximates your investment time horizon and the level of risk you are emotionally able to accept and still sleep at night.
A popular rule of thumb when determining how to allocate your assets is to subtract your age from 110 to arrive at an amount to be allocated to stocks.
For example
110 – your age(40) = 70 (the amount to allocate in stocks)
The remaining 30 percent would be placed in fixed income and cash type investments.
The chart below provides a beginning point of discussion when determining your asset allocation…
| AGE | ALLOCATION |
|---|---|
|
Under 30
|
 |
|
30-40
|
 |
|
40-50
|
 |
|
50 and older
|
 |