Insider Jeff Fleming

Asset Allocation: The Savvy Investor

In today's market, it is difficult and nearly impossible to regularly predict where the next "big win" will come, yet investors often chase the high returns and lose. To take the guessing game out of the investment gamble, try asset allocation. Insider Jeff Fleming discusses asset allocation strategies that could make you a savvy investor.

During the last decade, the stock market has performed overall beyond our wildest expectations. Consequently, today's consumers are confident about investing. They expect to earn 15 percent to 20 percent returns every year and want the best possible return compared to certain benchmarks such as the S&P 500 Index.

The difficulty is NO ONE can regularly predict where the next hot investment will be. All too often, investors jump on the investment bandwagon far too late in the game and then that particular investment drops through the floor, leaving the investor empty-handed. Has this ever happened to you? Proper asset allocation strategies can help.

Divide and Conquer
In a nutshell, asset allocation means owning a particular combination of stocks, bonds and cash. The amount of each that you own is dependent on a number of factors, including the length of time the money is to be invested and your risk tolerance level. It is NOT an exact science, yet it offers more security than playing the "hot stock" guessing game.

Asset allocation is designed to produce solid returns while subjecting the investor to less volatility. The overall return of your allocated portfolio in any given year may be less than if you invested all your money in the one stock or fund that happens to be the really big gainer during that period. But look at it this way: if that "big gainer" doesn't pay off, you're way ahead of the game because you distributed your assets between stocks, bonds, and cash.

Personalized Allocation
Your current age will most likely affect your asset allocation strategy. For instance, a 35-year-old investor saving for retirement may have 90 to 95 percent of his or her money in stocks and the balance in bonds and cash, while a 60-year-old investor considering retirement may have only 40 percent in stocks. The more invested in bonds, the lower the expected return of the portfolio will be.

To help you determine your appropriate allocation, use the ThirdAge Asset Allocator.

Reallocating Funds