Allocating Your Assets

Asset allocation describes the way you divide the money you have to invest, on a percentage basis, among cash investments, bonds, and stocks. Asset allocation is also a quick indicator of the level of risk your portfolio carries:

• When you emphasize stocks, you focus on long-term growth, not current income. Stocks carry more risk and are typically more volatile than bonds or cash because their prices typically change more quickly. Portfolios with heavy stock allocations are described as aggressive.
• When you emphasize cash and bonds, you concentrate on current income rather than long-term growth. They carry less risk because the investments are more liquid. Portfolios allocated largely to cash and bonds are described as conservative.

There’s no “right” way to allocate. What’s right for you depends on the:

• Goals you want to meet
• Time you have to reach those goals, which is another way of saying how old you are
• Amount of risk you’re comfortable taking

 

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