Dos and Don’ts of Asset Allocation

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By Bennett Whitlock, CRPC® Private Wealth Advisor

Asset allocation refers to diversifying your investments among different kinds of asset classes, such as stocks, bonds, real estate and cash. While this does not assure a profit, a diversified portfolio can help you weather the market’s ups
and downs. Here are some points to remember.

DO:

  • Re-balance annually. Pick a date each year to review your portfolio. Perhaps also review your asset allocation
    during a mid-year financial check-up. Volatile market conditions or a major life event may prompt you to rebalance as well. Note that re-balancing may result in trading fees and realized gains or losses.
  • Stick to your long-term asset allocation strategy. Rebalance your portfolio to match your fixed goals or percentages instead of trying to predict where the market is headed. Maintaining consistency in your strategy is the best way to ride out economic headwinds.
  • Consider tax implications. To help avoid big tax bills, ask your tax or financial professional whether putting your investments in tax-sheltered accounts might be right for you.

DON’T:

  • Take on more risk than you can tolerate. Risk tolerance should reflect your financial situation. If you wouldn’t be able to handle a nosedive in the market, adjust your asset allocation to lessen your risk. Alternately, you may be too conservative based on your time horizon and financial goals. Reassess your risk tolerance regularly.
  • Hold too many investments as a diversification strategy. If you invest in more than one mutual fund with the same objective, such as aggressive growth, those funds can carry the same risk. A sound asset allocation strategy requires true differentiation across various investment classes.
  • Expect asset allocation to do it all for you. There is no magic bullet for investing success. Asset allocation is
    simply a strategy that may help improve your investing results.

Bennett Whitlock, CRPC ®, is a private wealth advisor and managing director with Whitlock Wealth Management, a franchise of Ameriprise Financial Services, Inc. Learn more at WhitlockWealth.com or call 703-492-7732.

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