Ask the Advisor: Should I Be Changing Investment Allocations as My Goals and Time Horizon Change?

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What is asset allocation?

Investment in Different Types of Assets

Asset allocation is an approach to investing. It involves spreading your investments over different asset categories, such as equities, cash or cash-alternative investments, bonds, real estate, foreign securities, and possibly even precious metals or collectibles. Your asset mix, the specific investments within each category, and the timing of your investments all play a part in your overall return.

Different categories have different returns

The principle of asset allocation is that, over time, different broad categories of investments have shown different rates of return and levels of price volatility. By diversifying your investments over various categories, you spread your risk and theoretically maximize your return. Generally, downturns in one investment class may be tempered or even offset by favorable returns in another asset class. (However, diversification alone cannot guarantee a profit or ensure against a loss.)

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General Note on Asset Allocation

Generally, the higher the potential return on an investment, the higher the risk. The longer your investment horizon, the more risk you may generally be able to assume in the short run by allocating more of your investments to higher-risk (aggressive) assets. When your investment horizon is longer term, you have time to ride out short-term fluctuations. A shorter time frame usually requires a more conservative approach. You may want to reallocate more of your investments into lower-risk asset categories as the time approaches to convert your investments to cash for your particular goal.

Why consider changing your asset allocations?

The major reason you engaged in asset allocation may have been to achieve certain investment objectives. As your life changes, these objectives are likely to change, and it makes sense to shift your allocations. Numerous personal factors can cause your objective or time horizon to change. Outside factors may lead you to reallocate your investments, as well.

Respond to changes in your life or goals

You may have set your asset allocations with the initial objective of sending your child to college in 12 years. Time has passed, and your child will be entering college in two years. You should probably change your allocations based on the current time horizon. That may mean moving funds from higher-risk to lower-risk investments to ensure that the needed money will be available. Imagine the stress you might feel if the tuition invoice arrives while you are waiting for that risky stock investment to rebound from the tumble it took three months earlier. Imagine the stress that can be avoided by planning ahead and monitoring and rebalancing your allocations as your planning horizon changes.

About the author: Clint works out of our West Chester office and specializes in helping members with a variety of insurance and investment needs, including asset management, retirement planning, estate planning, and wealth preservation. He is a graduate of St. Joseph’s University where he earned a bachelor’s degree in finance. Schedule a consultation with Clint today at Read Clint’s bio.


IMPORTANT DISCLOSURES: Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. On deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Citadel has contracted with CFS to make non-deposit investment products and services available to credit union members.

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