Finding the Right Asset Allocation
Select a plan—and stick with it
How you invest across stocks, bonds and cash—your asset allocation—is one of the keys to long-term success. That's because these three basic asset classes respond to the market differently. When one is up, another can be down.
For instance, stocks are the most volatile and respond more quickly to market movements. Bonds, on the other hand, can provide a more stable return. Investing in both can help smooth out volatility.
Choosing the allocation that's right for you
How you allocate your assets should be based on three things:
- Your goals—both short- and long-term
- The number of years you have to invest
- Your tolerance for risk
Basing your asset allocation on these three important factors will make it easier for you to stick to your plan over the long term—even during years when there's a loss.
Here are some model asset allocation plans that offer different balances of risk and return.