Everyone has dreams, whether it's retiring early, sending children to college or buying your dream home. In order to realize these dreams you need a financial plan to manage your investments and help you work towards reaching your goals. Asset allocation is a key strategy upon which you can build your financial plan. Asset allocation is the combination of different proportions of stocks, bonds and cash in your portfolio to help control risk and return. While your financial consultant can help you determine which asset allocation is right for you, here are a few questions to ask to help you get started.
Q: What can I invest in?
A: There are many different investment vehicles to choose from and they can be characterized into 10 asset classes. These include six classes of stocks, three classes of bonds, and cash. The six classes of stock are broken down into domestic small capitalization, mid capitalization, and large capitalization, real estate, international developed market stocks and international emerging market stocks. The three classes of bonds include conservative, moderate and high-yield.
Q: How do I know which investments are right to meet my goals?
A: When mapping out your financial plan with your financial consultant you should consider your time horizon. How long will you have to invest before you need to draw from your investments? Assess your risk tolerance. How much market volatility, ups and downs, can you tolerate? Prioritize your goals. Is it important to retire or help send your grandchildren to college? How much money do you need to meet your financial obligations right now? The answers to these questions will help you and your financial consultant determine which investments are right for you.
Q: Can I change my asset allocation?
A: Absolutely. In fact, as you experience changes in your life, such as marriage or the birth of a child, it is key to review your asset allocation and change it according to your new needs. While it is not always necessary to make sweeping changes to your portfolio, it may need a tweak here or there to keep it in balance. For example, if the value of the stock portion of your portfolio has done exceedingly well, it may now exceed your original allocation. You may need to sell some of your stocks, in this case, to bring your portfolio back in line to meet your financial goals and risk tolerance.
Q: What is the difference between strategic, cyclical and tactical investing?
A: Most investors take a strategic approach to investing, meaning they have at least 10 years before they anticipate needing the money from their investments. Investors can consider using a strategic approach to asset allocation if they would only consider reallocating when there is a structural change in the economy, such as changes in the rate of inflation. Cyclical investors reallocate their funds based on the cycle of the economy, which could range from every three months to three years. Investors may consider using a cyclical approach to investing if they choose to reallocate their funds based on economic cycles such as recessions and expansions. A tactical investor changes his or her portfolio frequently and looks at a period of one-year or less when he or she chooses an investment. Investors can consider using a tactical model if they choose to reallocate their funds often. This type of investing is not for everyone as it involves active trading, usually accompanied by greater risk.
Talk with your financial consultant about creating the right blend of assets to help you get started.
This article was provided by A.G. Edwards & Sons, Inc., Member SIPC. Written by Will Hicks
Tuesday
August 5th, 2025
7:35AM
