Get Your Investment Mix 'Right'
One of the biggest retirement concerns for investors is deciding what to invest in. That's where "asset allocation" comes in to play.
Asset allocation is one of the most basic and important concepts in investing. It's the strategy of dividing your portfolio across different categories of investments, or "asset classes" -- such as stocks, bonds, real estate, cash, and cash alternatives.
Asset allocation determines how risky your portfolio is. The more you invest in risky asset classes -- like stocks -- the more your returns will fluctuate. That sounds bad, so why would you do that? Well, because with investing, risk and return are related. Simply put, if you'd like your portfolio to generate more return, you have to increase your exposure to risky asset classes.
Within each asset class in your portfolio, you should own as many securities as you can. Why? Because this "diversification" will lower the risk that one underperforming investment can permanently damage your portfolio. The best way to diversify in an asset class is to use a mutual fund or exchange-traded fund, not individual securities.
But what's the right asset allocation? That depends on how much return you need from your portfolio. One of Springwater's guiding principles is that you should take as little investment risk as possible, while still ensuring that your plan "works". That might mean only 25-30% allocated to stocks, or it might mean 65-70%.
So, the starting point for a discussion about your investment mix is how much return is needed for your plan to succeed.
Springwater Wealth Management
6600 SW 105th Avenue, Suite 155
Beaverton, OR 97008