Objectives & Risk

You need to first identify your investment objectives and preferences in order to determine an appropriate asset allocation strategy with suitable mutual fund recommendations. An optimum mix of different and distinct fund categories plays a critical role in establishing an effective and diversified mutual fund portfolio. This asset allocation mix is determined by several factors: investment stage, portfolio size, time horizon, total return objectives and risk tolerance.

Think of your investment stage in terms of a life cycle. During your working or accumulation years, growth-oriented strategies will attain higher total returns than income-oriented strategies. As you approach retirement, possibly a balanced-oriented strategy may be more appropriate to conserve your accumulated assets. Finally, in your retirement, income and stability would most likely be your priorities, although some growth is also important to help protect against inflation. These are general guidelines -- your return objectives and time horizon should govern your strategy.

Portfolio size is simply the amount of money in your portfolio. The higher the dollar amount, the more diversification and number of funds can be in a portfolio.

Time horizon is the number of years in your investment strategy. Investment objectives can vary, depending upon when you will withdraw ALL (or the vast majority) of your funds.

short-term (1-3 years)

intermediate-term (3-5 years)

long-term (over 5 years)

Return objectives in your investment strategy consists of (1) capital growth potential and (2) current income (yield).

growth-oriented: capital growth emphasized over current income -- for long-term time horizons only.

balanced-oriented: equal blends of capital growth and current income -- for intermediate or long-term time horizons.

income-oriented: current income emphasized over capital growth -- for any time horizon.

Risk tolerance is associated with the degree of price fluctuations (volatility) in bond and stock funds; these price fluctuations can range from stable to very volatile. As risk increases, both volatility and total return potential proportionately increase; on the other hand, lower levels of risk indicate less volatility and lower total return expectations. Subject to certain time horizon restrictions, a conservative, moderate or aggressive risk tolerance can match with any growth, balanced or income-oriented return objective.

conservative - will accept lower returns to minimize risk.

moderate - will accept average price fluctuations to pursue higher returns.

aggressive - will accept above average price fluctuations to seek above average returns.

Choose your strategy from the following -- age ranges are guidelines only:

Just Starting (ages 25-40) -- for long-term, growth-oriented return objectives

Established Earner (ages 41-55) -- for long-term, growth-oriented return objectives

Soon To Retire (ages 56-65) -- for long-term, balanced oriented return objectives

In Retirement (ages 65+) -- for long-term, income-oriented return objectives

Intermediate and Short-term -- for income and balanced-oriented return objectives only


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