Financial Planning is About Making Your Life Plan A Reality

Many folks who have just begun working with us are surprised by how our planning process starts. We don’t begin by talking about IRAs, 401(k)s, or how much you’re saving. Instead, we begin by talking about you, not your money.

Putting your life before your financial plan.

As Life-Centered Planners, our process begins with understanding your life plan. We start by asking you about your family, your work, your home, your goals, and the things that you value the most.

Our job is to build a financial plan that will help you make your life plan a reality.

Of course, building wealth that will provide for your family and keep you comfortable today and in retirement is a part of that plan. So is monitoring your investments and assets and doing what we can to maximize your return on investment.

But we believe maximizing your Return on Life is just as important, if not more so. People who view money as an end in and of itself never feel like they have enough money. People who learn to view money as a tool start to see a whole new world of possibilities open in front of them.

Feeling free.

One of the most important things your money can do for you is provide a sense of freedom. If you don’t feel locked into chasing after the next dollar, you’ll start exploring what more you can get out of life than just more money.

Feeling free to use your money in ways that fulfill you is going to become extremely important once you retire. Afterall, you’re going to have to do something with the 40 hours every week you used to spend working! But you’re also going to have to allow yourself to stop focusing on saving and start enjoying the life that your assets can provide.

Again, having money and building wealth is a part of the plan. But it’s not THE plan in and of itself.

The earlier you start thinking about how you can use your money to balance your vocation with vacation, your sense of personal and professional progress with recreation and pleasure, and the demands of supporting your family with achieving your individual goals, the freer you’re going to feel.

And achieving that kind of freedom with your money isn’t just going to help you sleep soundly at night – it’s going to make you feel excited to get out of bed the next morning.

What’s coming next?

So, when does the planning process end?

If you’re like most of the people we work with, never.

Life-Centered Planning isn’t about hitting some number with your savings, investments, and assets. And we’re much more concerned about how your life is going than how the markets are performing.

Instead, the kinds of adjustments we’re going to make throughout the life of your plan will be in response to major transitions in your life.

Some transitions we’ll be able to anticipate, like a child going to college, a big family vacation you’ve been planning for, and, for many of you, the actual date of your retirement. Other transitions, like a sudden illness or a big out-of-state move for work, we’ll help you adjust for as necessary.

In some cases, your life plan might change simply because you want something different out of life. You might start contemplating a career change. You might decide home doesn’t feel like home anymore and start looking for a new house. You might lose yourself in a new hobby and decide to invest some time and money in perfecting it. You might decide it’s time to be your own boss and start a brand new company.

Planning for and reacting to these moments where your life and your money intersect is what we do best. Come in and talk to us about how Life-Centered Planning can help you get the best life possible with the money you have.  Visit Our Website to learn more.

We also have some really great resources on our YouTube Channel, so head on over there to check it out.

Stocks Remain Bullish in 2nd Quarter!

Stocks Remain Bullish in 2nd Quarter

July 9, 2018

 

The Markets

 

What a rollercoaster of a quarter!

 

When it comes to the American Association of Individual Investors (AAII) Sentiment Survey, respondents tend to be more bullish than bearish about U.S. stock markets. The survey’s historical averages are:

 

  • 5 percent bullish
  • 0 percent neutral
  • 5 percent bearish

 

As the second quarter of 2018 began, investors were feeling less optimistic than usual. (About 36.6 percent were bearish and 31.9 percent bullish.) Their outlook was informed by a variety of factors, according to an early April article in The New York Times, which said:

 

“First there was the risk that the economy might be growing too fast, which could prompt central banks to hike interest rates sooner than expected. Then there was the risk of a trade war ignited by the White House imposing tariffs on certain products, an action that quickly prompted countries like China to erect trade barriers of their own. Next came the threat of a government crackdown on technology companies, after revelations of their misuse of customer data.”

 

As the quarter progressed, investor optimism increased on signs of economic strength. In early June, CNBC reported the economy appeared to be “operating close to full employment, with an unemployment rate at 3.8 percent, inflation still hovering at or below 2 percent, and business and consumer confidence strong.”

How did corporate earnings do this quarter?

Robust corporate earnings helped spur optimism, too. FactSet Insight wrote, “The S&P 500 reported earnings growth of 25 percent for the first quarter – the highest growth since Q3 2010.” In mid-June, the AAII survey showed 44.8 percent of respondents were feeling bullish, 21.7 percent were bearish, and 33.5 percent were neutral.

 

As talk of tariffs and trade wars resumed, investor optimism plummeted. By the end of June, just 27.9 percent of respondents were bullish and more than 39 percent reported they were feeling bearish. AAII explained:

 

“Many – but not all – individual investors anticipate continued volatility and/or think that the current political backdrop could have a further impact on the stock market. Trade policy is influencing some individual investors’ sentiment as well. While many approve of the Federal Reserve’s plan to continue gradually raising interest rates, some AAII members are concerned about the impact that rising rates will have. Also influencing sentiment are valuations, tax cuts, earnings growth, and economic growth.”

 

Despite a downturn in bullishness, major U.S. stock indices moved higher last week.

 

Data as of 7/6/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 1.5% 3.2% 14.5% 10.1% 11.0% 8.2%
Dow Jones Global ex-U.S. 0.0 -4.9 5.6 3.5 4.0 0.8
10-year Treasury Note (Yield Only) 2.8 NA 2.4 2.3 2.6 3.9
Gold (per ounce) 0.4 -3.2 2.5 2.5 0.3 3.2
Bloomberg Commodity Index -1.4 -2.2 4.6 -4.5 -7.5 -9.4
DJ Equity All REIT Total Return Index 1.9 3.2 9.0 9.2 9.3 8.9

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

there’s a carbon dioxide (CO2) shortage. really, it’s true.

Many people agree the world has too much CO2. It’s the reason representatives from countries around the world signed the Paris Climate Agreement. They committed to “adopt green energy sources, cut down on climate change emissions, and limit the rise of global temperatures,” reported National Public Radio.

 

The effort has been less successful than many had hoped, according to the International Energy Association (IEA). After several years without increases, energy-related emission rose by 1.4 percent in 2017. That’s the rough equivalent of putting 170 million more cars on the road, reported Scientific American.

 

Emissions rose primarily in Asia, although the European Union (EU) saw increases, too. The biggest decline was in the United States. There’s a certain irony there, since President Trump announced he would withdraw from the agreement in June 2017, reported The Washington Post.

 

Despite realizing a 1.5 percent increase in ­­­­­ emissions, the EU is experiencing a shortage of food-grade CO2. The Economist reported:

 

“Food-grade CO2 is a vital ingredient: it puts the fizz in carbonated drinks and beer, knocks out animals before slaughter and, as one of the gases inside packaging, delays meat and salad from going off. A shortage of the stuff has therefore created havoc in food makers’ supply chains.”

 

The EU’s food-grade CO2 is a harvested by-product of processes for making ammonia and other chemicals, reported The Economist. Three of Britain’s five ammonia plants have been closed because farmers are using less fertilizer, and CO2 does not deliver enough revenue to keep the plants running.

 

Let’s hope the shortage of CO2 doesn’t affect the supply of beverages available to World Cup fans.

 

Weekly Focus – Think About It

 

“My garden is an honest place. Every tree and every vine are incapable of concealment, and tell after two or three months exactly what sort of treatment they have had. The sower may mistake and sow his peas crookedly; the peas make no mistake, but come up and show his line.”

–Ralph Waldo Emerson

Why Delay? You Can Start Improving Your Health Right Now!

Why Delay? You Can Start Improving Your Health Right Now!

Mike Desepoli, Heritage

A Common Scenario.

A busy 40- to 50-hour work week, kids that need shuttling to and from school and extracurriculars … and a gradually decreasing metabolism.

Sound familiar?

Young, working couples with no kids may have more time to be active and healthy. Long morning walks. Three trips to the gym every week. Playing organized sports with friends. Cooking their way through gourmet recipes.

Then life happens. Children. Promotions at work that lead to more responsibility and longer hours.

A couple’s free time together begins to dry up. Softball night turns into crashing on the couch for a few hours before bed. Weekend bike trips or trivia nights turn into weekend rushes to and from kids’ soccer tournaments. Gourmet cookbooks are replaced by fast food menus.

Then there’s the money crunch. Even couples with a financial plan in place tend to worry more about money once a mortgage, car payments, and children enter the picture. Many couples start pinching pennies at the expense of their creature comforts and well-being. New clothes and a replacement for that worn-out mattress aren’t as important as saving for college tuition or eventual retirement. Frozen meals and take-out are quick fixes when there’s so little time to cook a good meal before your daughter’s dance lessons.

The Result

The risks involved when we start neglecting our health are real, and harder to correct as we continue to age. But there are emotional consequences as well, especially if one spouse slips out of shape faster than the other. Innocuous suggestions like, “Let’s take a trip to the farmer’s market” or “How about we re-start our gym membership?” can feel laced with criticism. A loss of confidence, feelings of depression, and inattentiveness to basic hygiene and appearance can follow. Money – already the most common source of marital friction – will continue to be a barrier to self-improvement. Unhealthy people don’t like being told they’re unhealthy, and will often put off preventative care, like annual checkups.

If you or your spouse are struggling with a similar scenario, take a moment to work through the following questions and suggestions together:

Questions to Ask

Are you and your spouse able to maintain your health without any financial stress?

Do you and your spouse regularly confirm your health and overall well-being with your doctors?

Is your level of physical activity higher or lower now than it used to be? If you’re about to retire, do you anticipate a more or less active lifestyle?

What are some physical recreational activities that you enjoy?

What is a recreational activity you’ve never tried, but deep down always wanted to try?

How old is your furniture, especially your bed and mattress?

How many fresh meals do you and your spouse cook and eat at home every week?

Steps to Take
  • Get up and get out there! Admitting that you need to get moving is the first step! Hopefully, many more will follow!
  • Hate going to the gym? You’re not alone. Instead, incorporate some daily exercise into your routine. How about a bike ride through your neighborhood or a local park every morning? Carve a few hours out of your schedule for a weekly tee time or tennis lessons. Take small breaks during the day to stand, get away from your computer, stretch, or take short walks.
  • Don’t ignore your creature comforts! The cost of a new mattress you’ll sleep on for the next ten years will be a lot less than the cost of braces and trips to the chiropractor.
  • You are what you eat! Planning out a week’s worth of healthy, fresh meals will make your grocery bills much more manageable. You might even find that healthy organic and farm-fresh items aren’t as expensive as they seemed.
  • The best medicine is preventative. Spotting potential health concerns as early as possible will keep both you and your bank account from hurting.
A Better Return on Life

The better you and your spouse feel individually, the better you’re going to feel together. An interest in improving your health can lead to new activities and interests that you’ll enjoy pursuing together well into your retirement years. After all, when you finish working and the kids are out of the house, you’ll need to find a whole new routine. Sports and active recreation are great places to start, both to keep you moving every day and as inspiration to see more of the world once you have more time to do so. Today’s daily walk around the block might lead to a hiking trip in Yosemite one day that neither of you will ever forget.

If you’re struggling to stay active as you age, or worried that you can’t afford a healthier lifestyle, come talk to us. We’ll help you review your budget, analyze your long-term financial plan, and offer suggestions on how to get the best life possible with the money you have.

Giving: How To Do The Most Good Without Disrupting Your Financial Plan

Giving: How To Do The Most Good Without Disrupting Your Financial Plan

Lou Desepoli, Heritage

Many studies have shown that charitable giving provides greater happiness than buying more stuff. Eventually, you get used to your fancy new car, and the enjoyment it provides goes down. But giving forges feelings of connectedness and community that don’t fade away.

Incorporating charitable giving into your financial plan is a great way to make sure that your generosity is aligned with the things that are most important to you. Some forethought about these key issues will also make sure that your good intentions don’t throw off the rest of your long-term planning:

Have a purpose.

The most effective charitable giving is thoughtful and intentional. It may be helpful for you and your spouse to ask yourselves some questions that will narrow your focus, such as:

  • Do we want to give to a national or local cause?
  • Are there pressing issues in our community that we feel we can help impact?
  • Do we have any personal connections to causes, such as medical research or support for the arts?
  • Want to support friends or family by contributing to causes that impact their lives or fulfill their passions?
  • Do we want to support a religious organization, such as our church?
  • Are our charitable impulses motivated by on-going problems, such as education or homelessness, or would we rather position ourselves to react to events such as natural disasters

Do your homework.

Once you’ve settled on a cause, do some research on potential recipients. Visit the local nonprofit you’d like to support and meet with its leadership team. Is the organization running itself responsibly? Are there good, competent people in charge? Will these people get the job done? Don’t sink your money into a well-intentioned black hole.

If you’re looking to give to a national organization, keep in mind that even some of the biggest names have come under fire lately from watchdog groups for misusing donations. Make sure you’re giving to an organization that’s doing what it says it’s going to do with your money.

Also, remember that big organizations – even non-profits – have to manage things like overhead, salaries, and insurance. Are you happy supporting the organization itself? If you want to see your money in action more visibly, you might be happier giving locally.

Beware the internet.

Whenever something bad happens in the world, our inboxes and social media are flooded with donation links. Read before you click. Be especially wary of crowd-funded campaigns on sites like GoFundMe. The cause may sound worthy, but these sites do not provide meaningful oversight on every campaign. Your money could be going to a cause, or it could be going straight into a scam artist’s pocket. You’ll never know for sure unless you know the person organizing the campaign.

Find out what will do the most good.

There’s more than one way to give. Maybe the local adult literacy center needs volunteer tutors as much as it needs money. Perhaps you’d feel more fulfilled helping out at your church’s food bank than you would feel by writing a check. Taking a more active role in a cause that’s important to you might be the most valuable thing you can give.

However, if you want to help with large-scale problems outside your own community, like hurricane recovery on the other side of the country, money is usually the most effective way to contribute. Unlike toiletries or canned goods, money doesn’t have to be boxed and shipped. You’re better off contributing to large, trustworthy organizations that already have systems and pipelines in place.

Know your limits.

Especially as you near retirement age, your giving should be a planned part of your budget. Don’t make a large one-time contribution that’s going to force you to dip into an emergency savings fund. Don’t sign up for a recurring gift that’s going to put a strain on your monthly bills. If you can’t give as much money to a cause as you’d like, think about supplementing a smaller contribution with regular volunteering.

Sometimes our best intentions get us into the most trouble. It’s great that you and your spouse want to use your money to try to make the world a better place. But your comfort and happiness are important too. Even the wealthiest people have to say no.

If you are ever in doubt, let your core values be your guide. Apply the same principle to your giving as you do to the rest of your life-centered financial plan: use the money you have to get the best life possible. With a little planning, you’ll make life better for those around you as well.

 

For more info on this topic and many others, check out The #AskTheAdvisor Show

Spending: What to Do When You and Your Spouse are NOT on the Same Page?

Spending: What to Do When You and Your Spouse are NOT on the Same Page?

Mike Desepoli, Heritage

Most married couples take a “divide and conquer” approach to household tasks and chores. One spouse might handle weekly shopping, the other might handle garbage and recycling. Or one spouse might handle laundry and cleaning, the other might handle yardwork and maintenance. One spouse might drive the kids to school, the other might handle pickup and extracurricular activities.

But household spending and budgeting is one of those responsibilities that’s best tackled together. Money issues are one of the biggest sources of marital tension, and a leading factor in divorces. Here are five ways that you and your spouse can make sure you agree on your household spending, avoid surprises, and maximize the Return on Life ™ your money provides.

Have an open and honest discussion.

Many couples assume their attitudes about money are aligned. Then one day, the roof needs an emergency repair that taps a savings account, or someone walks in the door with an unexpected splurge purchase (or worse yet, hides it!).

Stressful situations are not the ideal time for a couple to discover significant differences in spending habits. Sit down with your spouse and have a thorough review of your finances, and your monthly budget. Find compromises that will allow you to save for the future while still enjoying your present.

Understand the total household cash flow.

In many households, one spouse handles all the bill payments. This can lead to misunderstandings, and arguments, about where the money goes every month.

It is important for both spouses to understand how much the household spends every month, and how your bills get paid. If you’re the one who’s usually in charge of bills, take an hour to walk your spouse through your process. Show him or her which bills are paid electronically, which are paid by check, the monthly amounts and due dates, etc. This won’t just help both spouses understand the monthly cash flow, it will ensure that both spouses can handle household finances in the event of an emergency.

Be transparent about all assets and liabilities.

Newly married couples might still have banking or credit accounts that are only in the original account holder’s name. The other spouse might not find out about these accounts until a credit card is maxed out, or a checking account is overdrawn.

Again, the less stressful your reason for talking to your spouse, the more positive the outcome will be. Financial secrets tend to come out at the worst times, compounding stress, hurt feelings, and strain on your budget.

Your spouse should be a cosigner and beneficiary on all of your accounts, and vice-versa. If one of those accounts carries a large liability, get out in front of the problem and talk about how to start paying it down. Discuss the ramifications of combining any large individual assets with a tax professional or your financial advisor.

Agree on a budget.

If one spouse is responsible for budgeting and bill pay, that person often becomes The One Who Has to Say “No.” No eating out this week. No weekend trip to the waterpark,  no new cell phones, and certainly no new clothes.

No fun!

Nobody likes being in that position, especially if you’re saying “No” to your children. Eventually, you or your spouse will resent being The One Who Has to Say “No.” You should both understand the household’s monthly cash flow and agree on how your money is – and isn’t – spent.

Get help

Mint.com is just one of the many apps and web services that help households set and maintain a budget. If you’re a small business owner, Intuit offers a line of bookkeeping and tax prep solutions to fit any needs. Automating select bill payments and regular contributions to retirement and savings accounts can also help to clarify your monthly budgeting picture.

Finally, if there’s a spending gap between you and your spouse that seems impossible to bridge, we can be an excellent resource. It’s important to us that we understand where clients’ attitudes about money come from. We also strive to understand how they’ve developed these attitudes, and how they can diverge between couples. Facilitating this dialogue is key to making sure both people have the best life possible with the money they have…and we can help do that for you.

For more info on spending tips, check out this video: 1 simple tip to help curb the urge to spurge!

Savings: Does Your Desire to Save Match Your Reality?

Savings: Does Your Desire to Save Match Your Reality?

Mike Desepoli, Heritage Financial Advisory Group

“The only money that’s really yours is the money you spend.

Everything else goes to somebody else.”

-Teddy Chafolious

That piggy bank we remember from childhood wasn’t just a place to store our birthday money and spare change: it was a lesson, a way our parents encouraged us to get into the habit of saving. Many parents even go so far as to deposit half of any monetary gifts their children receive directly into a savings account, just to drive the point home. Adults who took that lesson to heart might set up automatic deposits into long-term savings or retirement accounts from their paychecks every month – a modern mechanism for implementing this age-old lesson.

But the quote from Teddy Chafolious raises an important point: What are we saving FOR? Many new investors come to their financial advisors with a number in mind: “I want to save $1 million before I retire.” There’s even something of a fad among millennials who work as hard as they can, save as much as they can, and try to retire before age 50.

But why? After all, “you can’t take it with you.”

It’s important to have financial goals, and committing to a regular savings plan is good first step towards achieving them. But if you treat your long-term financial planning as just a series of targets to hit, or numbers you have to drive up as much as possible, your return on investment is going to be a lot higher than your Return on Life – the feelings of happiness and fulfillment that your financial planning should provide you.

How much are Americans saving?

According to the US Bureau of Economic Analysis, Americans today are saving a lot less than they have in years past. Personal savings in the United States averaged 8.29 percent from 1959 until 2017. The rate for 2017 is hovering around 3 percent. Experts tie this historically low savings rate to increased household spending, which continues to outpace wage increases, and high levels of revolving debt, like credit cards.

Figures like these drive many people to the opposite end of the spectrum: they save as much as they possibly can, especially if they’re nearing retirement.

Finding balance.

We tend to think that the person saving more is doing a better job of managing his or her money than the person saving too little. But neither extreme is going to maximize your Return on Life. Spend too much enjoying the now, and you might end up having to work much longer than you want to – maybe even all the way through retirement. Save too much too early, and you and your family might miss out on the experiences that you deserve to enjoy with your hard-earned money: big family vacations, a new home, creature comforts, entertainment and culture that will enrich all of your lives.

Worse, new retirees who have spent their lives stuck in “savings mode” often have trouble transitioning to the reward mentality that should provide for a meaningful retirement. These retirees worry so much about running out of money that they often neglect their own wants and needs, to their emotional and physical detriment.

Reality check.

So how do you find that balance between enjoying today and preparing for tomorrow?

First, ask yourself if your rate of savings is in line with your reality. Are you saving so much that you’re not enjoying life as much as you could be? Or are you hovering around that 3 percent savings figure, telling yourself that you’re putting enough money away when you know, deep down, that you’re not?

Next, make an appointment with your Advisor to talk about your financial goals, and your vision for a dream retirement. Work together to find that saving/spending balance that’s going to align your savings with your reality, and hopefully, your goals and dreams. Find that sweet spot, and your money won’t just be numbers on a balance sheet. It will be yours. Don’t have an advisor? Here is a helpful article to show you what to look for.

Why We Love Money (And You Should, Too!)

WHY WE LOVE MONEY (AND YOU SHOULD, TOO!)

Mike Desepoli, Heritage

“Money can’t buy happiness but somehow it is better to cry in a BMW than on a bicycle.”
We often end up listening to the endless arguments upon whether to be materialistic or not. While spiritually we should not really become materialistic because world’s greatest joys are not hidden in materialistic items at the same time living in a practical world around people, you cannot help but be materialistic after all without money you cannot go anywhere (think about your cab driver).

Here is our take on whether to love money or not and to what extent?

MONEY BUYS YOU THINGS

Off course world’s greatest joys are hidden in the things that money cannot buy but think of the dress that you always wanted to buy, think of the vacation that is too expensive but you really wish to experience it, think of the joy which is beheld in a double crest cheesy pizza. These things are not possible without money; do you still believe that money cannot buy joy?

MONEY MOTIVATES

Won’t you be joyous to see your bank balance hitting the sky? Well, isn’t the whole point of finding a job, earning well, having a well-settled life somehow revolves around earning money too. It is true that job satisfaction is primary to be thought upon but don’t you think that often money motivates you to do more or to do better? Come on who would refuse to put some extra efforts for monetary benefits offered?

MONEY BRINGS PRESTIGE

Whether you agree or disagree, the society has agreed upon that fact that money brings in prestige. While respect has to be earned and there are no two ways about it but your lifestyle adds on to this respect as well. A king sized lifestyle gets a king sized treatment and what is a king without treasure? Are you getting our point?

THE DESIRES

We are humans and that is why our desires are unreasonably endless. However, have you ever noticed that each desire of yours stops at money? Whether you wish to learn a newer skill or pack your bags for travelling. Everything begins and ends with the amount that your bank balance reads. The unfulfilled desires bring anxiety and with no money in your hand, you are going to pile up in anxiety only.

UNDENIABLE FACTOR

No matter how much you hate minting money so matter how much denial do you possess for money the reality is that money forms an integral and undeniable element of life. Your stand in the society, your extracurricular activities, your lifestyle, your efficiency of work and so on is determined by money.

We agree that greed can dig your grave but, a complete denial of money is yet another form of digging your graves too. While it is vital to be contented with what you have, there is no harm in desiring for a little extra either.

GOT A PIECE OF ADVICE ON MONEY? WE WOULD LOVE TO GET YOUR FEEDBACKS IN COMMENTS

Do you love money too? Check out #AskTheAdvisor 41: 3 Things Successful Investors NEVER Do!

Managing Investment Risk

Managing Investment Risk

By Mike Desepoli, Heritage

If we know one thing about stock market investors it’s that the better the market performs, the less and less they think about risk. The first thing every investor should know and accept is that there is no such thing as a surefire investment. Risk is a part of the process. No matter what you invest in, there is always a possibility that you won’t turn a profit – or worse: you can lose some or even all of what you put in to it. You can manage risk, though, with a few proven techniques.

Asset Allocation

The first step in managing risk is to practice asset allocation. This means having your money in a variety of asset classes, which include cash, stocks, and bonds. Doing so is a protective measure – typically when stocks are doing well, bonds aren’t, and vice versa. Having some money in cash (or cash equivalents, which are extremely low-risk investments such as Treasury Bills and money market funds) makes sense, because outside of inflation risk – the slow but steady increase in the cost of living – your money is pretty safe.

Generally speaking, cash is the least risky of the asset classes, then bonds, and then stocks. Where you put your money depends largely on what type of investor you are, so be sure to allocate your funds according to your comfort level and needs:

• Aggressive Investor. 75% of holdings in stocks, 15% in bonds, and 10% in cash
• Balanced Investor. 50% of holdings in stocks, 25% in bonds, and 25% in cash
• Conservative Investor. 25% of holdings in stocks, 25% in bonds, and 50% in cash

Diversification

After you spread risk by investing in different asset classes, you can manage it even further through diversification. There are many different types and classes of stocks and bonds – some are much more risky (but with the potential for greater reward) than others. Therefore it is a good idea to divide your funds among a variety of investment vehicles with different risk and reward potentials.

For example, consider purchasing shares of stock in an assortment of different sectors. A sector is a subset of a market, and stocks are often grouped by the company’s type of business. Sectors include utilities, transportation, technology, health care, energy, and communications services. When you diversify your holdings among sectors, you spread risk – if one sector is doing poorly, another is probably doing well.
An easy way to diversify your holdings is with mutual funds, since they are comprised of many different investment types and classes.

Dollar Cost Averaging

Dollar cost averaging is another way of managing investment risk, and nothing can be simpler to do. You can practice dollar cost averaging by purchasing securities with a fixed amount of money at regular intervals. This way you buy more shares when the price is low and fewer shares when the price is high, thus reducing the over-all cost of the shares purchased.
If you have a retirement account through your employer, you already practice dollar cost averaging. You are having a set amount of money deducted from each paycheck deposited into your retirement account. And whether the mutual fund is doing well or poorly, the same amount of money is being invested. Done over many years, you ride out the highs and lows of the market.

Review and adjust your portfolio (your collection of investments) regularly. Even if you are comfortable with a great deal of risk, the closer you get to retirement, the more conservative your investment portfolio should become. The last thing you want is to have the bulk of your money – cash you are expecting to have when you stop working – in investments that have a high likelihood for loss.