[This post is written and copyrighted by FIRE Finance (http://firefinance.blogspot.com).]
Editor's Note: This post was published at Carnival Of Personal Finance #91.
[Continued from Investing - Asset Allocation - Part 5]
First a quick recap of what was offered in this mini series. It was launched (part 1) with an introduction to asset allocation coupled with 2 very useful and interactive asset allocation calculators. The next part (2) showed us suggested models from Fidelity and Charles Schwab. In part 3 of the series we discussed the models at Etrade. The subsequent chapter (4) explored models from Vanguard. We analyzed the charts from American Funds in part 5. Last but not the least here we are at its concluding section.
In this final post of the mini series we would like to encourage all budding and early investors to do their due diligence. Please determine the asset allocation tailored to your specific goals and align your portfolio accordingly. While doing so be sure to consider the following points.
- Tolerance for risk - Willingness and ability to accept short term loss in capital, some or all of it, for potential higher long term returns. Most of us feel we can handle risk well. But in reality, we don't know how much we can stomach until tested; adversity tries a person. Given a sudden downturn in economy many seasoned investors may panic. So we should search deep inside us to asses our risk tolerance.
- Time horizon for investing - Longer the time period available for investing greater are the chances of recovery from a slump in the economy. It is as simple as that. Naturally as we near and go into retirement, we would allocate assets more and more conservatively, thereby minimizing potential risks.
- Individual financial objectives - Last but not the least, our specific short and long term financial goals, current assets, debts, savings potential and lifestyle should be taken into account for determining how much risk we should take. Risk and reward are two faces of the same coin. If we want our capital to appreciate we have to take some amount of risk albeit a calculated and educated one.
We hope that the tips and tools suggested in this mini series would help all get started on asset allocation. As usual, we would love to hear about your experiences regarding asset allocation. Please feel free to share them with us.