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Raymond James:A column by James Kruzan


Your personal asset allocation



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May 26, 2010 - As an investor, it is of utmost importance to be able to answer certain fundamental questions: Will your current investment portfolio be able to meet both short- and long-term investment objectives, geared to your individual level of tolerance for risk?

One sound way to answer these questions is by utilizing asset allocation — a disciplined, objective investment game plan that will help you meet your financial goals.

A simple asset allocation model for an individual investor generally requires a portfolio of assets divided into three categories — stocks, bonds and cash.

Each is assigned a fixed percentage. Based on this strategy, a conservative portfolio would generally contain more bonds and cash than stocks. A more aggressive portfolio might contain a higher percentage of stocks.

Asset allocation is flexible and revolves around personal needs. However, professional financial advisors have generally found that investors at various age levels tend to be best served by adopting allocation models that address the needs of their "life-cycle phase". In most cases, the longer your investment time horizon, the more aggressive your investment strategy might be.

For example, investors in their 30s and 40s tend to have several needs and concerns in common (e.g., children, new home, college education, retirement planning). To address these concerns, an asset allocation plan that emphasizes stocks is often recommended because they historically have provided superior returns over time.

Even though past performance may not be indicative of future results. At the other end of the spectrum are investors who are close to or who have entered into retirement. Their goal might include providing enough income to maintain a lifestyle, or growth of their capital to ensure they do not outlive their assets. For these investors an above-average holding in bonds may be recommended.

James B. Kruzan, CFP is a Registered Principal and Branch Manager for Raymond James Financial Services, Inc., Fenton and Clarkston.

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