Allocation Models

It is important to choose an allocation model that best fits your goals and financial situation. When you begin allocating assets within your portfolio, start by choosing the percentage of the total that you'd like to invest in various asset classes. Generally, this depends on your time horizon and your risk tolerance. Investors with a longer time horizon may choose to be more aggressive, while those with a shorter timeframe usually want to be conservative.

The more aggressive you are, the more you might concentrate your portfolio in riskier investments, like growth stocks. An aggressive portfolio might contain 80% equities, 15% bonds and only 5% cash. A conservative model would allocate a greater percentage to fixed income or cash. For example, a conservative portfolio might invest 40% in stocks, 40% in bonds and 20% in cash. A more moderate approach would be to create a portfolio that invests 60% in stocks, 30% in bonds and 10% in cash or cash equivalents.