Your investing strategy differs depending on where you are in your life, so adjusting your asset allocation to meet your current needs is crucial.
With three simple steps, you can position yourself to be lucky and make sure your money is performing for you:
- Diversify. Research shows that 92 percent of growth is based on diversification and only 1.8 percent comes from buying the right asset
at the right time.
"No one who has wealth ever had 100 percent of their money in stocks," Casserly says. A portfolio should include a mix of other investment vehicles, such as bonds and real estate. The makeup of your portfolio should fit how you want your money to perform and how much risk you are willing to take.
- Rebalance. Because riskier investments carry the potential for greater returns, they often outperform pieces of your portfolio that provide more predictable, but smaller, returns. Investments that earn more over time will take up a larger portion of your portfolio.
To account for this uneven growth, examine your portfolio regularly and reallocate assets to fit your ideal balance. Casserly suggests rebalancing at least once a quarter or choosing a fund, like those available from Fidelity or American Funds, that will automatically rebalance for you.
- Reconsider. A 10 percent loss in one asset class may not mean the same thing to you that it once did. Even though the proportions are the same, losing 10 percent on a $1,000 investment is not nearly as frightening as losing the same percentage on a $100,000 investment. So as your assets grow, take another look at the allocation that worked for you when you didn't have as much at stake.
"When you throw in a couple more zeros, it's a whole new ballgame," Casserly says. "You need to make sure that your investments align with
your true risk tolerance."
