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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 investment strategies to determine your risk tolerance

Here are some asset allocation examples based on historical data (1976–2016). Use the buttons below to explore these different investment strategies and see the best and worst year returns.

  • Conservative
  • Moderately Conservative
  • Moderate
  • Moderately Aggressive
  • Aggressive
  • Conservative
        • 15% Large-Cap Equity
        • 5% International Equity
        • 50% Fixed Income
        • 30% Cash Investments
      Average annual return: 7.6%
      Best year: 22.8%
      Worst year: -4.6%

    For investors who seek current income and stability and are less concerned about growth.

  • Moderately Conservative
        • 25% Large-Cap Equity
        • 5% Small-Cap Equity
        • 10% International Equity
        • 50% Fixed Income
        • 10% Cash Investments
      Average annual return: 8.8%
      Best year: 27.0%
      Worst year: -12.5%

    For investors who seek current income and stability, with modest potential for increase in the value of their investments.

  • Moderate
        • 35% Large-Cap Equity
        • 10% Small-Cap Equity
        • 15% International Equity
        • 35% Fixed Income
        • 5% Cash Investments
      Average annual return: 9.4%
      Best year: 30.9%
      Worst year: -20.9%

    For long-term investors who don’t need current income and want some growth potential. Likely to entail some fluctuations in value, but presents less volatility than the overall equity market.

  • Moderately Aggressive
        • 45% Large-Cap Equity
        • 15% Small-Cap Equity
        • 20% International Equity
        • 15% Fixed Income
        • 5% Cash Investments
      Average annual return: 9.9%
      Best year: 34.4%
      Worst year: -29.5%

    For long-term investors who want good growth potential and don’t need current income. Entails a fair amount of volatility, but not as much as a portfolio invested exclusively in equities.

  • Aggressive
        • 50% Large-Cap Equity
        • 20% Small-Cap Equity
        • 25% International Equity
        • 5% Cash Investments
      Average annual return: 10.1%
      Best year: 39.9%
      Worst year: -36.0%

    For long-term investors who want high growth potential and don’t need current income. May entail substantial year-to-year volatility in value in exchange for potentially high long-term returns.

Source: Schwab Center for Financial Research with data provided by Morningstar, Inc. The return figures for 1970-2016 are the compounded annual average and the minimum and maximum annual total returns of hypothetical asset allocation plans. The asset allocation plans are weighted averages of the performance of the indices used to represent each asset class in the plans, include reinvestment of dividends and interest, and are rebalanced annually. The indices representing each asset class in the historical asset allocation plans are S&P 500® Index (large-cap stocks); CRSP 6–8 Index for the period 1970–1978 and Russell 2000® Index for the period 1979–2016 (small-cap stocks); MSCI EAFE® Net of Taxes (international stocks); Ibbotson Intermediate-Term Government Bond Index for the period 1970–1975 and Bloomberg Barclays U.S. Aggregate Bond Index for the period 1976–2016 (fixed income); and Ibbotson U.S. 30-day Treasury Bill Index for the period 1970–1977 and Citigroup 3-month U.S. Treasury Bills for the period 1978–2016 (cash investments). Indices are unmanaged, do not incur fees or expenses, and cannot be invested in directly. Past performance is no guarantee of future results.

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.

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