Choosing Your Investment Strategy

Part of the Asset Allocation For Dummies Cheat Sheet

Take into consideration your life goals and circumstances when deciding on your investment strategy. By doing the work now, you’ll see a clear link between your ideal strategy and your long-term financial plan in the end. Take these factors into consideration to decide on your investment strategy before determining your asset allocation:

  • Your investment horizon and long-term financial goals: Your money needs to keep working for you far into the future, even if you’re already retired. Do the work now to project your long-term cash flow.

  • Your return requirements: What kind of return do you need from your portfolio? The answer will tell you how conservative or aggressive your investment strategy needs to be.

  • Your risk tolerance: How far are you willing to go to get the return you need? The higher the return you’d like, the more risk you must take.

  • Your constraints: Constraints are nonnegotiable, period. Maybe you won’t consider certain investments for personal or moral reasons, for example. Maybe you won’t even think about dropping a poorly performing stock from your portfolio because you inherited it from your Great-Aunt Jenny.

  • Your tax situation: Tax-free, lower-yielding municipal bonds may be a good choice for you now — however, taxable, and higher-yielding, bonds may serve you better in retirement, if you end up in a lower tax bracket.

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Asset Allocation For Dummies Cheat Sheet

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