Financial Education Series

Asset Allocation Guide

Building a Portfolio for Your Financial Goals

Asset allocation is the process of dividing your investments across different asset classes to optimize returns while managing risk. Your allocation should reflect your goals, time horizon, and risk tolerance.

Why This Matters

Studies suggest that asset allocation explains more than 90% of a portfolio's long-term return variation, making it one of the most important investment decisions you'll make.

Major Asset Classes

Growth Assets

Stocks/Equities

Ownership shares in companies, offering higher growth potential with higher volatility.

Real Estate

Property investments through REITs or direct ownership, providing both income and growth.

Commodities

Raw materials like gold, silver, or oil that can serve as inflation hedges.

Income Assets

Bonds/Fixed Income

Loans to governments or corporations that pay regular interest, providing stability.

Cash and Equivalents

Highly liquid investments like money market funds, CDs, and Treasury bills.

Dividend Stocks

Stocks that pay regular dividends, blending income with potential for growth.

Allocation by Time Horizon

Timeframe Strategies

Short-Term (0-3 years)

60-80% Cash/Short-term bonds

20-40% Conservative bonds

0-10% Stocks

Focus: Capital preservation and liquidity

Medium-Term (3-10 years)

30-50% Bonds

40-60% Stocks

5-10% Cash

Focus: Balanced growth and moderate risk

Long-Term (10+ years)

70-90% Stocks

10-30% Bonds

0-5% Cash

Focus: Maximum growth potential

Common Allocation Models

Portfolio Examples

Conservative Portfolio

Designed for those close to or in retirement, with lower risk tolerance, or short-term goals.

20-30% Stocks50-60% Bonds10-30% Cash

Moderate Portfolio

Balanced approach suitable for mid-term goals or investors with moderate risk tolerance.

50-60% Stocks30-40% Bonds5-10% Cash

Aggressive Portfolio

Growth-focused approach for long-term goals and investors comfortable with volatility.

80-90% Stocks10-20% Bonds0-5% Cash

Getting Started

Implementation Steps

Step 1: Assess Your Situation

Define your goals, time horizon, and risk tolerance to determine which allocation model fits best.

Step 2: Create Your Asset Mix

Choose specific investments within each asset class, considering tax-efficiency and account types.

Step 3: Implement Gradually

Consider dollar-cost averaging into your target allocation, especially for large portfolio changes.

Step 4: Rebalance Periodically

Review your allocation annually or when it drifts 5% or more from targets, and adjust as needed.

This content is educational in nature and updated as of 2024. Asset allocation strategies should be personalized to your specific situation. Market conditions, investment offerings, and tax implications may change over time. This information is not intended as investment advice. Please consult with a qualified financial professional before making investment decisions.