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 Investing Basics

2. Plan Your Mix


Once you’ve decided on your goals and determined your target dollar amounts, it’s time to pick your overall mix of investment types. Deciding how much investment risk you can take on should be based on where you are in life and the amount of time that you have. Get our Investor Profile Worksheet.

Determine your asset allocation

Determine your asset allocation.

One way to help guard against risk is to allocate your money across asset classes, such as stocks, bonds, and cash—a strategy known as .
Diversify Investments

Diversify investments.

To further offset risk, you should consider diversifying investments within each asset class too. That means spreading your money across different sectors, industries, and companies.

Identify your risk tolerance

Identify your risk tolerance.

Use the asset allocation models below to help you determine your ideal mix of investments based on the amount of  
you are comfortable with.
Talk to a Schwab investment professional

Use our asset allocation models to determine your risk tolerance

Here are some asset allocation examples based on historical data (1970–2012); examples assume a hypothetical $10,000 initial investment and annual compounding. Use the buttons below to explore the different scenarios and see the best- and worst-year returns.

  • Conservative
  • Moderately Conservative
  • Moderate
  • Moderately Aggressive
  • Aggressive
    • 15% Large-Company Equity
    • 50% Fixed Income
    • 30% Cash and Cash Investments
    • 5% International Equity

    Conservative allocation is best for those who:

    • Want current income and stability
    • Want capital preservation
    • 30% Large-Company Equity
    • 10% International Equity
    • 50% Fixed Income
    • 10% Cash and Cash Investments

    Moderately Conservative allocation is best for those who:

    • Want current income and relative stability
    • Want some opportunity to increase the value of investments
    • 35% Large-Company Equity
    • 10% Small-Company Equity
    • 15% International Equity
    • 35% Fixed Income
    • 5% Cash and Cash Investments

    Moderate allocation is best for those who:

    • Want solid growth with relative stability
    • Don’t need current income
    • Can tolerate some fluctuations but want considerably less risk than overall stock market
    • 45% Large-Company Equity
    • 15% Small-Company Equity
    • 20% International Equity
    • 15% Fixed Income
    • 5% Cash and Cash Investments

    Moderately Aggressive allocation is best for those who:

    • Are most concerned about investments growing in value
    • Don’t need current income
    • Can tolerate some fluctuations, but want slightly less risk than overall stock market
    • 50% Large-Company Equity
    • 20% Small-Company Equity
    • 25% International Equity
    • 5% Cash and Cash Investments

    Aggressive allocation is best for those who:

    • Are most concerned with investments growing in value
    • Don’t need current income
    • Have a good tolerance for a higher degree of risk
  • Invested 1970–2012 $10,000
  • Historical Growth $462,627
  • Best-Year Return 30.9%
  • Worst-Year Return –20.9%

Source: Charles Schwab Investment Advisory, Inc. (CSIA), an affiliate of Charles Schwab & Co., Inc. ("Schwab") with data provided by Morningstar, Inc. The return figures for 1970 through 2012 are the compound average, the minimum and the maximum annual total returns of the hypothetical plans, include reinvestment of dividends, and are rebalanced annually. The indices representing each asset class in the historical asset allocation plans are S&P 500 Index (large-company equity); Russell 2000 Index (small-company equity); MSCI EAFE Net of Taxes (international equity); Barclays US Aggregate Bond Index (fixed income);' and Citigroup 3-month US Treasury Bills (cash equivalents. CSRP 6-8 was used for small-company equity prior to 1979, Ibbotson Intermediate-Term Government Bond Index was used for fixed income prior to 1976, and Ibbotson 30-Day US Treasury Bills were used for cash equivalents prior to 1978). Indices are unmanaged, do not incur fees or expenses and cannot be invested in directly.

Top Questions

We believe the best way to offset investment risk is to allocate your money across asset classes. The three main asset classes are stocks, bonds, and cash.

And just as you allocate your investments across the above classes, you will also want to consider dividing, or diversifying, your investments within each asset class. This involves spreading your money in different sectors, industries, regions, and companies in the hope that if one investment loses money, the other investments will offset those losses. Historically, different types of investments have reacted differently to market cycles and interest rate changes, so combining them can help reduce overall portfolio risk. If one asset dips in value, another may remain stable or rise, potentially buffering the high and low swings in the value of your overall portfolio.
The following strategies can help counter common sources of investment risk:

Market Risk: The risk that you will lose money due to the ups and downs of the market.

How You Might Counter: Hold a mix of investments—i.e., diversify—to help lower your risk potential by spreading money across and within different asset classes, such as stocks, bonds, and cash.

Interest Rate Risk: The risk that interest rate changes will impact the value of your investments.

How You Might Counter: Interest rate risk primarily affects bond prices, which tend to move in the opposite direction from interest rates. For example, the prices for long-maturity bonds tend to fall more than short-term bonds when interest rates rise. One way to reduce interest rate risk is to stick with bonds with short to medium durations. Their prices are less sensitive to rising interest rates, and their shorter-term nature allows investors to invest in higher yielding bonds as rates increase.

Inflation Risk: The risk that your investment income and gains won't keep pace with price increases for goods and services.

How You Might Counter: Look at investments that can help to protect you against rising inflation, such as Treasury Inflation-Protected Securities (TIPS). Stocks and real estate have also been used in the past for some level of protection against inflation.
Determining the risk of any investment can be a complex process. You must take a variety of factors into account, such as the type of investment and the fluctuations in the market. Before you decide on your investment mix, consider consulting with an investment professional who can help you build a portfolio that suits your risk tolerance and time horizon.

Schwab clients can get personal guidance from a Schwab investment professional at no cost. Schedule your complimentary consultation today.

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