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.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
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.Use the asset allocation models below to help you determine your ideal mix of investments based on the amount of
you are comfortable with.
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.
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.
Schwab clients can get personal guidance from a Schwab investment professional at no cost. Schedule your complimentary consultation today.
Diversification strategies do not ensure a profit and do not protect against losses in declining markets.
The calculators, tools and information on this site are for informational and educational use only, and should not be used as the sole basis for an investment decision and do not constitute investment advice. Where specific advice is appropriate or necessary, please consult with a qualified tax advisor, CPA, financial planner or investment manager before making any type of investment. We also encourage you to review your investment strategy periodically or as your financial circumstances change.
The hypothetical calculations generated using these tools are an approximation and are not a indication or guarantee of future results. The hypothetical returns shown do not represent the actual growth of any investments. .
The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of securities and investment strategies mentioned may not be suitable for everyone. Each investor needs to review a security transaction for his or her own particular situation.
International investments are subject to additional risks such as currency fluctuation, geopolitical risk and the potential for illiquid markets. Small cap funds are subject to greater volatility than those in other asset categories.
Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed-income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors.
The consultation is complimentary, although the implementation of any recommendations made during the consultation may result in trade commissions or other fees, charges, or expenses. During the consultation, specific advice and recommendations are limited to assets held at Schwab by clients with an existing Schwab retail brokerage account. Examples may be provided of the advice and recommendations that might be offered if outside assets were transferred to Schwab; however, such information is for educational purposes only.