Key #5
An asset allocation strategy is specific to your needs and should change, as your financial needs change.
The asset allocation strategy that's right for you is not necessarily right for someone else. Several factors are going to determine your asset allocation:
| When will you need the money you're investing? |
If you have a longer investment horizon, you can potentially accept the higher risks offered by more aggressive investments. Remember to keep a panoramic view of the market, not a close-up view. In the long-run, stocks have outperformed bonds and cash-equivalent investments. A longer investment horizon means you have more time to compound higher returns and recoup from any loses. If you have a shorter investment horizon, you can't risk losing money you will soon need. |
| What other financial resources do you have? |
If you don't have any other financial resources for retirement, you can't accept as much risk in your investment. However, if you have other savings, pensions or a spouse who provides financial support, you can invest more aggressively with less impact on your financial future. |
| How much money will you need for goal? |
It's important to identify the amount of money you need for your goal rather than making as much as you can. That can lead you to accepting greater risks than necessary and could jeopardize reaching your goal. On the other hand, investing too conservatively can keep you from reaching your goal. Finding the right balance is important. |
| How do you feel about losses to your investments? |
Would losses keep you awake at night? Would they cause you to change your long-term financial strategy and try to time the market? If your investments immediately experienced losses, would you feel pressured to quickly move your money into those that were increasing in value? If the answer to these questions is yes, you should probably lean on the conservative side of investments. |
Remember, as time passes, our financial needs change. As we get older and closer to retirement, our investment horizon gets shorter. That means that we have less time to recover any investment losses. Further, changes in our family situations, such as a divorce, a different job, a change in future goals can have an impact on your goals. It's a good idea to regularly review your asset allocation and adjust it as your needs change.
Unlock Investment Potential Today
Of course, even with these important investment keys, the first step is for you to turn the keys and unlock your money's potential by establishing a strategy today. Although the General Board currently does not provide specific investment advice, such as which fund to select for your individual needs, you can contact a qualified financial planner, specifically a fee-based only planner, for assistance in determining a plan. Fee-based only planners generate their income through the advice that they provide you and not through commissions. Such an individual can help you assess your risk tolerance, evaluate your personal finances and retirement goals and develop a program that is suited to your individual needs. To find a financial advisor, you can first seek referrals through friends and family members.
Large-cap stocks are represented by the S&P 500 Index, which is an index of the 500 largest capitalized companies in the U.S.
Small-cap stocks are represented by the Russell 2000, which measures the 2000 smallest companies in the Russell 3000 index-a measure of the top 3000 largest companies in the U.S.
Bonds are represented by the Lehman Brothers Government/Corporate Bond Index, which is generally representative of intermediate and long-term government and investment grade corporate debt securities.
International stocks are represented by the MSCI EAFE index, which represents The Europe, Australia, and Far East Index, from Morgan Stanley Capital International, an unmanaged, index generally representing the larger companies of developed, industrialized nations.
Cash-equivalents are represented by the annual average of 3-month T-bills.
Past performance is no guarantee of future returns.
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