Asset Allocation For Dummies
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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.

About This Article

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About the book authors:

Jerry A. Miccolis, CFA, CFP, FCAS, MAAA, is a financial advisor, widely quoted financial author, and expert commentator who has appeared on CBS Radio and ABC-TV. Dorianne R. Perrucci is a freelance writer who has been published in The New York Times, Newsweek, and, and has collaborated on several investing books, including I.O.U.S.A., One Nation, Under Stress, In Debt (Wiley, 2008).

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