Allocation Strategies

Think of your investment stage as a life cycle. You accrue assets during your working career. At this stage, focus on growth-related strategies to achieve higher total returns on investment. To preserve the assets you’ve amassed over the years, evaluate balanced and/or income-oriented strategies.

Prioritize principal and income stability in retirement. In retirement, continue to grow capital according to your risk tolerance. Inflation can erode your acquiring power.

General guidelines for investing

Investing strategies should align with your investment goals and objectives. Today, many long-term investors want to continue growing their capital. Since fixed income and other interest-bearing securities provide historically low returns, investors may opt to maintain growth as their primary investment goal.

Select the following options with conservative, moderate, and aggressive risk tolerances in mind. There are two major differences between the three risk tolerance categories: (1) the range of fund categories and (2) the percentage change in basic allocations.

The application of risk tolerance includes two contrasting perspectives

In the first view, risk tolerance is viewed as a simple adjustment to asset allocation that covers a single risk-reward spectrum, e.g. cash, equity, and bond funds.

Comparatively, the risk tolerance perspective considers risk as a fund category allocation that begins with an investor’s basic asset allocation and proceeds to the selection of those fund categories most suitable for their risk tolerance. An investment strategy created using this second method provides greater precision and portfolio customization.

An investor’s conservative, moderate, or aggressive risk tolerance may be combined with various return objectives (subject to some time horizon restrictions) using the fund category method.

As long as the investor embraces a long-term time horizon, any risk tolerance — conservative, moderate, or aggressive — can be paired with growth, balanced, or income-focused return objectives.

Depending on the time horizon of the investor, any of the three risk tolerance categories may be paired with an income return objective. Importantly, a growth-oriented return objective requires a long-term time horizon and an efficient portfolio diversification.

Start by selecting your investment strategy.

Your age range and strategy may differ from these guidelines:

  • Just Starting (age 25-40) — goals include long-term and growth-oriented return objectives
  • Established Earner (age 41-55) — goals include long-term and growth-oriented return objectives. In this category, the investor may have more available funds to invest in financial assets.
  • Soon-to-Retire (age 56-65) — goals include long-term and balanced growth plus income return objectives
  • In Retirement (age 65+) — goals include long-term and income-focused return objectives
  • Intermediate and Short-Term — include investing for income and balanced portfolio return objectives.