|1.||Know what you're investing for.|
|2.||Make paying yourself a priority.|
|3.||Make tax-smart investments.|
|4.||Diversify your portfolio.|
|>||Understanding the various asset classes|
|>||Establishing the right asset allocation mix makes all the difference|
|>||Diversify within each asset class Stocks|
|>||Diversify within each asset class Bonds|
|>||Take the long view|
Where they are now:Julie and Brian are in their early 30s and are fairly new to investing. They knew they didn't have the time or expertise to invest in individual stocks, so they chose to invest in mutual funds instead. They learned enough online to create what they thought were diversified portfolios for each of their IRAs. They included an S&P 500 Index fund, a bond fund, and a money market fund in each. They have equal percentages in each category. They feel diversified but are now wondering if their asset mix is appropriate.
What they might do differently:Fortunately, Julie and Brian have recognized the value of not putting both of their IRAs in one asset category. Many investors at their age overlook this and place 100% of their money in stocks. However, Julie and Brian could make a couple adjustments. First, they limited themselves to a large cap fund (since the S&P 500 Index fund invests only in the 500 largest U.S. companies), so they missed out on the added potential growth of small and mid cap stocks. In addition to adding funds from these categories, they might also consider including a mix of growth and value funds in these categories, and some exposure to international and emerging market funds.
Now let's take a look at their asset mix. Is it appropriate for their current situation? Julie and Brian do not anticipate retiring for at least another 20 years. Their current asset mix is 33% stock, 33% bond, and 33% cash. Because their goal is a couple decades away, they have time on their side to temper market fluctuations, and may want to consider a more aggressive allocation to stock funds.
Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment losses.
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. In general, when interest rates rise, bond values fall and investors may lose principal value. Some funds, including nondiversified funds and funds investing in foreign investments, high-yield bonds, small- and mid- cap stocks, and/or more volatile segments of the economy, entail additional risk and may not be appropriate for all investors. Consult a fund's prospectus for additional information on these and other risks.