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Choosing the right investment strategy is an essential component of a successful portfolio foundation. It should outline a clear path to achieving your financial goals. A precise asset allocation strategy of mutual funds provides essential diversification as well.

In other words, asset allocation allows you to disperse your assets across discrete fund categories to meet (1) your risk/reward objectives and (2) to lower your overall portfolio risk. An asset allocation plan should help you avoid unsuitable or unnecessary risks. The following mistakes can be avoided: selecting inappropriate fund management strategies, over weighting certain fund categories, duplicating categories, or simply acquiring unsuitable funds. For more insight, go to three common mistakes in mutual fund investing.

In any stage of asset accumulation, nearing or in retirement, or if you just want a second opinion, we can suggest an investment allocation plan that's precisely tailored to suit your goals and risk tolerance.

Three-Step Process

Firstly, start by defining your investment goals. Include your investment stage, portfolio size, time horizon, risk tolerance, and return objectives. Refer to objectives and risk for more information. Also make sure to own asset classes that are not correlated with one another, read our guide on how to have a truly diversified portfolio.

Do not put all your eggs in one basket. Such assets are precious metals, refer to what is the best gold IRA company for more information, treasury bills, bonds, real estate and more. Refer to guides like the differences between a traditional and a self-directed IRA or how to rollover a 401(k) plan to a physical gold IRA for more information.

Secondly, devise an appropriate investment strategy. Include a detailed allocation by fund category that represents your risk tolerance and return objectives. You should focus on specific mutual fund allocation strategies to effectively diversify and balance risk/reward potential. For more information, refer to the Role of Risk in Mutual Fund Strategies.

Finally, select suitable and highly ranked 100 percent no-load mutual funds that are a recommended match to your category allocations. Recommended fund attributes include:

  • Above-average category performance
  • Long-tenured fund management
  • Adherence to fund style/objectives
  • Below-average costs (operating expenses) in the category

Recommended Fund Parameters

Remember that front-end loads, back-end loads, and 12b-1 fees reduce the amount of capital you're investing in the fund strategy.

Avoid:

  • Front-ended loaded funds that pay the seller an initial sales commission.
  • Back-end load funds that defer the payout of sales charges
  • 12b-1 fees, or annual marketing fees

Look for:

  • Below-average fund operating expenses
  • Five-year performance track record (minimum)
  • Morningstar 4 or 5-stars
  • Above-average category ranking

Fund Allocation Strategies

Think of your investment stage as a life cycle. In your accumulation or working years, growth-focused strategies are likely to achieve higher total returns for your portfolio. As you near retirement, evaluate balanced-oriented strategies to conserve your accumulated capital. Lastly, stability of principal and income may be your priorities in retirement. Note that investment stages and age ranges are only a guideline.

However, you may consider some growth to offset the impact of inflation on your long-term acquiring power. The size of your portfolio, risk tolerance, time horizon, and return objectives should guide your strategy and determine how best to achieve your investment goals.

The following investment strategies reflect conservative, moderate, and aggressive tolerances for risk. The main differences in these risk tolerances are fund categories' variation and modification in asset allocations.

Select your strategy from the following investor life cycles:

  • Just Starting (ages 25-40) for very long-term and capital growth-oriented investment objectives
  • Established Earner (ages 41-55) for long-term and capital growth-oriented investment objectives
  • Soon To Retire (ages 56-65) for long-term and capital balanced-oriented investment objectives
  • In Retirement (ages 65+) for long-term and capital income-oriented objectives

Alternatively, you can also explore other sections of the site to get information on investment, personal finance and related topics.

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