Understanding Asset Allocation

March 24, 2016
Asset allocation is the practice of dividing your investment portfolio among various asset categories (such as stocks, bonds, and cash) in a way that best aligns with your risk tolerance and investment goals. Proper asset allocation is one of the most important factors in determining an investment portfolio’s performance. Some studies indicate that the allocation of assets accounts for as much as 90% of a total portfolio return, leaving just 10% dependent upon the actual stocks and bonds placed in the portfolio.
 
The right asset allocation mix will vary by person and is based on many factors including your investment time horizon, your age, and how much risk you are willing to tolerate.
 

Time horizon

Your time (or investment) horizon is the length of time you’d like to invest your money. In terms of investing for retirement, the longer the period of time until you retire, the more risk (and potentially higher returns) you may be willing to accept. Plus, if you have more time, you can better weather the ups and downs of your investments while taking advantage of the long-term growth potential they offer. If retirement is around the corner, the ups and downs of the stock market might not be as easily tolerated and you may decide to opt for a less risky investment portfolio.
 

Age

When you take into consideration the age you begin investing and the age you plan to retire, your asset allocation approach will vary. For example, if you begin at age 25, you have more opportunities to adjust and correct investments if there is volatility in the market. However, if you begin investing at age 40, you have less time until retirement and may need to make a larger impact, quickly.
 
In addition, since people live 20 to 30 years beyond their retirement age; having an investment portfolio that continues to grow after retirement could be critical to insuring you do not run out of money. In short, your investment horizon doesn’t end just because you retire.
 

Risk tolerance

Risk tolerance is your ability and willingness to lose some or all of your original investment in exchange for potentially greater returns. Conservative investors generally do not like taking big risks when they invest and will usually forego opportunities that offer potentially higher returns in favor of those that may preserve their original investment. Aggressive investors are willing to take larger risks as long as there is an opportunity for more substantial returns. When assessing your risk tolerance, you may want to consider whether or not your principal investment is insured against loss.
 

The role of a financial advisor

You may want to consider working with an investment professional to determine the portfolio mix that best suits your needs and goals. Assessing your personal risk tolerance and determining the appropriate asset allocation mix will have a lasting impact on the type of retirement you enjoy.
 
1st United has contracted with CUSO Financial Services, L.P. (CFS*) to assist you. Our CFS representative has met with many 1st United members and has assisted with everything from financial advice to retirement planning.
 
If you’d like to meet with Rahil, feel free to reach out to him at (925) 598-4718. He is available to chat by phone or he can meet you for a complimentary appointment at any of our 1st United branches.
This information brought to you by...

Rahil Machiwalla, CFS Financial Adivsor
Rahil Machiwalla, CUSO Financial Services, L.P.*
Financial Advisor
(925) 598-4718
CA Insurance Number: 0G20361

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the Credit Union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to Credit Union members. Please consult a qualified tax advisor for specific tax advice.