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Small contributions when youre younger make a difference in your retirement strategy.
Overview: What Is Asset Allocation?
Asset allocationis an investment strategy that divides your investment portfolio by asset types.
Heres a look at the ideal retirement asset allocation for different age groups.
You have the option to leverage time and allow funds to grow.
Many in their 20s likely are working for companies that offer a 401(k).
A401(k) planis a tax advantaged retirement account where an employee makes contributions.
Another option is setting up anindividual retirement account(IRA).
Also, some portion of your allocation portfolio should include money foremergency funds.
In terms of asset allocation, you should still contribute to your 401(k).
The asset allocation can still swing heavier toward stocks because youre young.
You also, though, might want to contribute to bonds as it balances out stock volatility.
Investing in cash equivalents like amoney market fundcan add a diversified element to your portfolio.
During your thirties, for an additional diversification layer, consider soundreal estateinvestments too.
You still want to focus on growth, but with an eye toward mitigating risk.
It is a good idea to review the allocations in your portfolio.
Stocks may still remain a staple in your portfolio.
If youre open to diversification, you could look to real estate investments, commodities andcryptocurrency.
However, keep in mind, these are riskier investments but could provide aggressive growth.
You should ideally have 40% to 50% in stocks.
Your tilt should be toward lower volatility stocks and potentially dividend paying stocks.
Your investment strategy should include bonds.
you might have a mix of different types of bonds, including corporate and governmentbonds.
These types of investments offer stability and a moderate return on your investment.
Also, cash and cash equivalents should be kept as options.
Stocks will continue to play a role in your portfolio.
However, they should represent only 30% of your portfolio.
There should be a continued emphasis on dividend paying stocks andlower volatility investments.
The shift in focus toward steady growth means leaning more heavily on bonds.
Bonds offer capital preservation and a steady source of income.
These funds will also offer a steady stream of retirement income.
Make adjustments in your portfolio accordingly.
If the market is swinging toward volatility you may want to shift your allocation of stocks to bonds.
Bonds are safer for stable income in a high interest climate.
When the interest rates are lower, consider increasing stocks and other alternative investments.
High Inflation
Purchasing power tends to decrease during periods of highinflation.
During this time, you should look into investing in commodities or real estate.
Diversification can help portfolios when inflation is having a negative impact on cash and traditional bonds.
Final Take
Asset allocation, ideally, tends to evolve as you age.
At every stage of your life, youre looking to balance aggressive growth with managing risk.
Takeaway
Finding and working with a financial advisor is a great idea.
A financial advisor will help keep track of your finances and assist you in attaining your financial goals.
Get to know your financial advisor options today for free!
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