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A Publication of WTVP

As you move through the different stages of life—buying a home, starting a family, or retirement—your investment needs change. There are times when you may be willing to increase investment risk to capture growth opportunities. Other times, you may want to decrease risk to secure a steady flow of income. Does your portfolio represent your current needs? If not, you may want to consider updating your asset allocation strategy.

Spreading your money across various types of investments is called “diversification.” Asset allocation is a strategy to help you effectively diversify your portfolio among asset classes, including stocks, bonds, and cash/money markets. Your allocation strategy is an important factor influencing your portfolio’s return, as well as risk—perhaps even more important than the actual investment selected. Also, it’s important to remember that asset allocation and diversification don’t assure a profit or protect against a loss.

Choosing Your Asset Allocation Model
Your strategy or model should depend on whether your primary need is to produce income or to grow the value of your investment. For example, a retirement portfolio won’t need to produce income until you retire. Therefore, depending on your tolerance for risk and time frame, your model might focus on growth until you’re near retirement. This situation might call for an aggressive growth model with the majority of your portfolio in stocks, a sizable amount in bonds, and the remaining in money markets.

After retirement, you might shift some of your stocks into bond or money market holdings to provide the income stream you’ll need. You might keep some portion of assets in stocks in seeking growth to help outpace inflation and to help fund your later years.

Refining Your Model Along the Way
Your asset allocation should change as you reach different stages in your life or as you approach your goals. The key considerations will be the level of risk you’re willing to take on, the rate of return and income you require, and your investment time horizon. With this information, you can develop a personal model with the goal of controlling risk and helping you meet your goals.
Your financial advisor can recommend an allocation model that meets your individual goals and circumstances and help you refine it as needed.

Evaluating your portfolio’s performance on a regular basis is an important step in reaching your investment goals. While many investors wait until year-end to assess their stock portfolios, it’s important to review your investment strategy throughout the year to be sure it remains in line with your objectives. In fact, many financial advisors suggest that their clients examine equity holdings every quarter to get a clear picture of how stocks are performing.

If you haven’t done so in a while, now may be a good time to take a fresh look at your holdings. Some investors like to make a list of the stocks that have met expectations and another of those that have been disappointments. This initiates the portfolio grooming process, allowing you to consider whether some stocks should be sold and begin to evaluate new stocks or new sectors that may help your portfolio.

Since diversification can help reduce volatility, you can consider selling stocks from sectors in which your portfolio is over weighted and buying stocks in areas where your portfolio lacks exposure. A good rule of thumb is to adjust your portfolio as your objectives change and not when the market fluctuates. Your financial advisor can make recommendations that may help you decide which stocks to add to—or delete from—your portfolio. The most important thing to do as you elevate your portfolio is stay focused on your long-term goals. With a long-term approach, you have the potential to reach your long-term financial objectives. However, a regular portfolio review can help ensure your portfolio is positioned to take advantage of changing markets and economic conditions that complement your long-term objectives. IBI

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