Asset allocation can be a very complicated topic or it can be a simplistic one. Here is a simple yet effective way to look at asset allocation. It basically comes down to how much you should have in cash, bonds and stocks. Here are three simple rules to help you keep your portfolio in check.
- If you need the money in the next year, it should be in cash.
- If you need the money in the next one to five years, choose safe, income producing investments.
- Any money you do not need within the next five years is a candidate for the stock market or stock mutual funds.
According to Jeremy Siegel’s Stocks for the Long Run, since 1802 stocks outperformed bonds in 69% of rolling five-year investing periods (1802-1807, 1803-1808, etc.). The percentage of the time the stocks beat bonds only improves as you look over the longer horizon. Bottom line is when you need your money will partially dictate where you put it. Your tolerance for risk is also a key factor.
If you would like to discuss your current mix in your portfolio to make sure you are heading in the direction you would like, give us a call today!