![]() ![]() ![]() "We tend to remember what happened most recently, so these are good questions to ask now." "What investment changes did you make in 2022? Did you sell? Did you buy? Do nothing?" asks Sabino Vargas, a senior financial adviser and certified financial planner at Vanguard. If your portfolio declines by 20% in one year, are you likely to stay the course or change the portfolio?Įven better is a real-life example. Much of it boils down to assessing how you will react during a market crash. Most money managers, from digital robos to high-net-worth advisers, pose questions to gauge how aggressive or conservative you are as an investor. If you're going through a divorce, for example, "no matter who you are, you're going to have a low tolerance for risk," says Blaine Thiederman, a certified financial planner in Arvada, Colo. Likewise, major life events can have an effect, too. "People say they want to take lots of risk when markets are rising and no risk when markets are falling," says David Born, a certified financial planner in Orinda, Calif. It also varies from person to person, and it may be colored by market conditions. "Risk tolerance is a fuzzy concept," says Page. Figuring out how much volatility you can stomach – your tolerance for risk – is tougher. Money needed for a down payment on a house in three years, for instance, should be invested in cash or short-term bonds, not stocks, because you may not have enough time to make up any potential losses. "Time horizon is a big driver of the amount of risk you can take on in the portfolio," says T. Your child's first college tuition bill will land in two years, for example, or you plan to retire in 10. "Once you have that framework, you can start to know how to invest given what you hope to accomplish," she says. Are you saving for retirement, college, a down payment on a house? "When is that happening? Five years away, or 25 years away?" Viktorin continues. "What are we trying to accomplish?" asks Ryan Viktorin, a certified financial planner at Fidelity Investments. "Balancing those risks is the key to investment planning."īefore professional advisers get into that, however, they get a full picture of your finances and square away important questions first. Know your investing goals and risk toleranceĪsset allocation is basically about "getting the right mix of assets given your risk tolerance and risk capacity, or time horizon," says Robert Williams, managing director of financial planning at Charles Schwab. We'll walk you through the steps the pros take to help clients build their portfolios so you can benefit, too. The process is part art and part science. We polled some of the best asset allocators in the business for their thoughts on how to construct a portfolio. To help you decide how to apportion your portfolio, we went to the experts. Foreign stocks have been outperforming their U.S. stocks, down from their peak in late 2021 even after a rebound, are still expensive relative to shares in other countries' markets. Inflation, despite recent declines, remains high. Bond yields are higher and cash, at long last, can earn a decent interest rate. Smart investors will view the turmoil of 2022 as a sign that some tweaks to their portfolio may be required. ![]()
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