Portfolio Planning

An asset allocation model is a blue- print for spreading your investment capital among different asset classes. The most suitable model varies, based on an investor’s age, economic situation, and tolerance for investment risk, plus expectations about how the market is likely to perform. Comparing different ways to allocate may help you determine the model that might be best for you.

AGGRESSIVE

An aggressive allocation, which may be appropriate for young people or those with a steady source of fixed income, tends to emphasize equities, with as much as 80% to 90% of the portfolio being invested in stock, stock mutual funds, and stock ETFs.

MODERATE

A moderate allocation might assign between 50% and 70% of the total to equities, depending on your age, your financial goals, and your other financial resources, with the balance going to fixed income and some cash.

CONSERVATIVE

A conservative allocation, which may be appropriate for older people wanting to preserve capital and collect regular income, might assign 40% of the total to equities, with the rest divided between bonds and cash, depending on the economy and an investor’s personal financial situation.

As you analyze an investment’s return remember that the gains or losses it has provided—known as past performance— don’t predict future results. The fate of some one-time stars of the stock market provides ample verification.

However, one of the core principles
of asset allocation is that an investment’s return tends to move in a statistically predictable way above and below its mean, or average value. This variation, called standard deviation, allows you to anticipate the probable range of future returns over a full economic cycle.

Contributions from the book Guide to Understanding Life Insurance in this press release are used with permission from Light Bulb Press.