Erin, A Good Friend Of Yours, Is Interested In Investing. However, Erin Is Concerned About The Current State Of The Market. They Are Looking At An Investment Portfolio Of Bonds. Erin Would Like For Her Money To Double In Value In 9 Years. How Much Would E (2023)

FAQs

Why should investors be concerned with asset allocation their age and the time their investments have to work for them? ›

Those who are younger can tolerate more risk, but they often have less income to invest. Those who near retirement may have more money to invest, but less time to recover from any losses. Asset allocation by age plays an important role in building a sound retirement investing strategy.

The company promises to pay you interest and to return your money on a date in the future. This promise generally makes bonds safer than stocks, but bonds can be risky. To assess how risky a bond is you can check the bond's credit rating.

Diversify across asset classes

A well-diversified portfolio combines different types of investments, called asset classes, which carry different levels of risk. The three main asset classes are stocks, bonds, and cash alternatives.

Many financial advisors recommend a 60/40 asset allocation between stocks and fixed income to take advantage of growth while keeping up your defenses.

Going by historic returns, the long-term “equity stocks buy and hold” strategy has proven to generate one of the highest returns. With this strategy, you can also keep accumulating stocks of companies that match your investment profile and hold them for the long term.

Buy and hold

Advantages: The buy-and-hold strategy focuses you on the long term and thinking like an owner, so you avoid the active trading that hurts the returns of most investors. Your success depends on how the underlying business performs over time.

Dollar-cost averaging

Doing so helps to "smooth" out the purchase price over time as you purchase more shares when the stock price is down and buy less shares when the stock price is up. Over time, you gain a better average entry price and reduce the impact of market volatility on your portfolio.

Key Takeaways. The U.S. stock market is considered to offer the highest investment returns over time. Higher returns, however, come with higher risk. Stock prices typically are more volatile than bond prices.

What is the safest investment with the highest return? ›

In most cases $300,000 is simply not enough money on which to retire early. If you retire at age 60, you will have to live on your $15,000 drawdown and nothing more. This is close to the $12,760 poverty line for an individual and translates into a monthly income of about $1,250 per month.

Asset allocation helps investors strike the balance between investments for the short-term and investments for the long-term. Minimize Taxes: different asset classes are taxed in different ways. By allocating investments across asset classes, an investor can minimize tax liability.

Asset allocation is the process of deciding where to put money to work in the market. It aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance, and investment horizon.

It does make sense to change your portfolio allocation by age. That's because the older you get, the less risk you can tolerate. Put simply, you don't have the time to lose and replenish the capital base in your nest egg. Preservation of capital is important for those who are closer to retirement.

Different categories of investments respond to changing economic and political conditions in different ways. By including different asset classes in your portfolio, you increase the probability that some of your investments will provide satisfactory returns even if others are flat or losing value.