SENSIBLE INVESTMENT STRATEGIES
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 erosion of assets. However, these are general guidelines -- you should select the strategy that best fits your actual return objectives.
All of the selections below are illustrated with conservative, moderate and aggressive risk tolerances. The primary differences in all three risk tolerances are (1) percentage modifications of basic allocations and (2) variation of fund categories.
There are two contrasting viewpoints regarding the application of risk tolerances. One treats risk tolerance primarily as a basic asset allocation adjustment, covering only one risk/reward spectrum (cash, bond and stock funds). The other viewpoint treats risk tolerance primarily as a fund category allocation, starting with a basic asset allocation and then selecting the types of fund categories which are suitable for the desired risk tolerance -- this method allows more precision and customization in designing an investment strategy than the basic asset allocation method.
Using the fund category allocation method, conservative, moderate or aggressive risk tolerances can combine with a variety of return objectives, subject to certain time horizon restrictions. For example, any one of these risk tolerances can match with a growth, balanced or income-oriented return objective, provided that the time horizon is long-term. With short-term or intermediate time horizons, any one of these three risk tolerances can match with an income-oriented return objective (note: growth-oriented return objectives require long-term time horizons).
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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