Most people know the importance of balancing investment portfolio ; however, they frequently overlook the crucial role of their investment mix in reaching their financial goals.

Your asset allocation

Your financial specialist can help you develop an appropriate combination of assets such as stocks, bonds and cash in your portfolio. As you have allocated your asset, two key factors that you need to consider are your investment horizon and risk tolerate.

Investment horizon

If you are in the monetary saving stage, your asset allocation should be determined primarily by the exact time when you need to use the money. In general, the further you are from your goal (e.g., saving for your retirement in 20 years), the more you can afford to invest in more risky investments like stocks. The shorter your investment horizon (e.g., saving for a child's college education in five years), the more conservatively you should invest. If you are in the spending stage, such as retirement, your asset allocation should be determined primarily by the periodic income from the investment portfolio. Your financial specialist will help you make this decision.

Risk tolerance

All investments carry risk - some more than others. Your risk acceptance level should also play an important role in the process of determine your investment mix. For example, if you are a risk-averse investor, you may prefer more conservative investments in your portfolio, even if that means forgoing the potential of greater returns.

One size does not fit all

It's important to remember that there is no clear-out solution that can determine the precise investment mix for every individual. While your investment horizon and risk tolerance are important, other factors can also influence on how you should use your money, including how much money you have already saved and how much more you can afford to invest.

Keeping your asset allocation on track

Maintaining an appropriate asset mix is a lifelong series of shifting goals, life changes and completeness. When your personal circumstances change, your goals, time horizon and risk tolerance are also likely to change, sometimes it can be significant. When your investment mix is no longer in track with your financial goals, a financial specialist can help you rebalance your portfolio. However, it is always a good habit to evaluate your portfolio with your financial specialist on an annual basis - regardless of whether or not your situation has changed.
Here is a useful checklist of what to review with your financial specialist.

Steps to keep your portfolio properly balanced

1. Evaluate your current financial situation. This includes your family situation, how much money you have accumulated, your financial objective and targeted rate of return.
2. Determine your investment horizon.
3. Calculate your needs for income, if any, and how many years you will need that income.
4. Select your investment mix to reflect your goals and objectives.
5. Adjust your mix to reflect your risk tolerance level.
6. Review and adjust your portfolio on a regular basis.

 

 

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