Prepared by: Gary Barker, Financial Advisor | September 11, 2018 Investment Allocation PlanBob and Sally Smith
Major Asset Classes • Stocks • Bonds • Cash equivalents
What is a stock? • Represents ownership in a company • Intent: Sell price > purchase price • Appeals to the long-term investor • Volatile • No guarantees
What is a bond? • Long-term loan • Ex: Corporation- or government-issued • Investors receive principal and interest • Appeals to investor seeking fixed income • Performance affected by current interest rates • Quality/risk based upon issuer’s ability to repay loan
What is a cash investment? • Short-term loan • Ex: Credit union savings account, certificates of deposit, government treasury bills, money market accounts • Investors receive principal and interest • Appeals to investor seeking maximum protection • Very low risk • Very low profit
Asset Allocation • Amount divided among the three asset classes • Based upon: • Risk tolerance • Investment goals • Current time horizon • Allocate more stocks in early years of your career • Increase allocation to bonds as you near retirement age • Add cash asset class when very close to retirement and/or in retirement Diversification and asset allocation strategies do not assure profit or protect against loss in a generally declining market.
Diversification • How assets are divided WITHIN the three asset classes • Decreases risk in overall portfolio • Reduces fluctuations in portfolio returns Diversification and asset allocation strategies do not assure profit or protect against loss in a generally declining market.
Three Step Process • Asset allocation • Time horizon • Risk tolerance • Investment goals • Diversification • Decrease risk/reduce fluctuations • Monitor and manage • Adjust as you near anticipated retirement age • Periodically rebalance
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