{"id":8033,"date":"2009-12-30T13:00:04","date_gmt":"2009-12-30T20:00:04","guid":{"rendered":"http:\/\/getrichslowly.org\/blog\/?p=8033"},"modified":"2020-12-12T17:39:35","modified_gmt":"2020-12-13T01:39:35","slug":"getting-started-with-asset-allocation","status":"publish","type":"post","link":"https:\/\/www.getrichslowly.org\/getting-started-with-asset-allocation\/","title":{"rendered":"Getting Started with Asset Allocation"},"content":{"rendered":"<p>If you&#8217;re new to investing, recognize the merits of using low-cost <a href=\"https:\/\/www.getrichslowly.org\/are-index-funds-the-best-investment\/\">index funds<\/a>, but you&#8217;re not sure how to allocate your long-term savings among various types of index funds, this information is for you.<\/p>\n<p><i><b>Asset allocation basics<\/b><\/i><br \/>\nWhile there are many ways to divide investment assets into different categories, there are two main classifications: <a href=\"https:\/\/www.getrichslowly.org\/saving-and-investing-what-is-a-stock\/\">stocks<\/a> and <a href=\"https:\/\/www.getrichslowly.org\/saving-and-investing-what-is-a-bond\/\">bonds<\/a>.<\/p>\n<p>Here&#8217;s what you need to know: Stocks are riskier but have the potential for higher rewards compared with bonds. Also, stocks and bonds don&#8217;t always move up or down together. That&#8217;s it. That&#8217;s enough info to get you started. There&#8217;s plenty more to learn about <a href=\"https:\/\/www.getrichslowly.org\/stocks-vs-bonds\/\">stocks and bonds<\/a> if you want, but you needn&#8217;t wait any longer to start investing.<\/p>\n<p><i><b>The starter asset allocation<\/b><\/i><br \/>\nIf you&#8217;re just getting started, here&#8217;s a fine way to allocate your funds until you&#8217;re ready to make things more complex:<\/p>\n<ul>\n<li>60% in a total US stock market index fund<\/li>\n<li>40% in a total US bond market index fund<\/li>\n<\/ul>\n<p>The biggest criticism I hear over this approach is that it&#8217;s too conservative for younger investors and to aggressive for older investors. My response: Then change it to 80% stocks\/20% bonds (for young investors) or 40% stocks\/60% bonds (for older investors) if that&#8217;s the conclusion you&#8217;ve reached.<\/p>\n<p>Another criticism is that there&#8217;s no international (or emerging markets, REITs, TIPS, or whatever else you like). Okay, so add them if you want and can satisfy fund minimums. Use the starter allocation as a <i>starting<\/i> point. As your knowledge, understanding, and comfort level increase, feel free to make changes.<\/p>\n<p><b>If you&#8217;re just starting out without a lot of money, the greatest influence on your account balance will not come from your asset allocation; it will be your own contributions.<\/b> If having 20% in international stocks would have earned you an extra half percent on your $5,000 portfolio your, you missed out on $25. (And it could just as easily cost you half a percent, in which case you saved $25.)<\/p>\n<p>When your balance is small, what you contribute matters more than what you contribute to. You <i>may<\/i> even reach the conclusion that the 60\/40 starter allocation is works for you long-term.<\/p>\n<p>If you don&#8217;t have enough money saved to meet the minimum investments, then save in a high-yield savings account until you do. (For example, you can implement the starter allocation using VBINX with $3,000.)<\/p>\n<p><i><b>Next steps<\/b><\/i><br \/>\nOnce you have more money invested for longer periods of time, asset allocation decisions become more significant. Just keep in mind that increased stock market exposure doesn&#8217;t always mean a greater chance of achieving your financial goals. The added risk of additional stock may work against you, and in some cases can decrease you chances of achieving your financial goals. I&#8217;m not talking about market volatility; I&#8217;m talking about the very real chance of experiencing a less favorable, long-term outcome.<\/p>\n<p>From here, you can continue to educate yourself about the effect of asset allocation on your own financial goals and priorities, or you can seek some help from a professional. And by seek some help from a professional, I&#8217;m not necessarily talking about having them manage your money; you can hire a financial planner just to recommend an appropriate asset allocation for you that you can implement yourself.<i><\/i><\/p>\n","protected":false},"excerpt":{"rendered":"<p>If you&#8217;re new to investing, recognize the merits of using low-cost <a href=\"https:\/\/www.getrichslowly.org\/are-index-funds-the-best-investment\/\">index funds<\/a>, but you&#8217;re not sure how to allocate your long-term savings among various types of index funds, this information is for you.<\/p>\n<p><i><b>Asset allocation basics<\/b><\/i><br \/>\nWhile there are many ways to divide investment assets into different categories, there are two main classifications: <a href=\"https:\/\/www.getrichslowly.org\/saving-and-investing-what-is-a-stock\/\">stocks<\/a> and <a href=\"https:\/\/www.getrichslowly.org\/saving-and-investing-what-is-a-bond\/\">bonds<\/a>.<\/p>\n<p>Here&#8217;s what you need to know: Stocks are riskier but have the potential for higher rewards compared with bonds. Also, stocks and bonds don&#8217;t always move up or down together. That&#8217;s it. That&#8217;s enough info to get you started. There&#8217;s plenty more to learn about <a href=\"https:\/\/www.getrichslowly.org\/stocks-vs-bonds\/\">stocks and bonds<\/a> if you want, but you needn&#8217;t wait any longer to start investing.<\/p>\n","protected":false},"author":3357,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[492],"acf":[],"_links":{"self":[{"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/posts\/8033"}],"collection":[{"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/users\/3357"}],"replies":[{"embeddable":true,"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/comments?post=8033"}],"version-history":[{"count":0,"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/posts\/8033\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/media?parent=8033"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/categories?post=8033"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}