Picking An Asset Mix

I talk about investing a lot on this blog. One tricky part of investing is picking your asset mix. Every person will have a different mix based on different needs. The biggest factor in your mix is age.

I am in my twenties. As a twenty-something, single male, I can realistically afford to lose 100% of my portfolio and be fine for retirement. I have over thirty years to retirement (though I would like to earlier), so I can rebuild if something goes wrong in my investments.

If you are sixty, you are getting ready to retire. If you lose even 20% of your investments, you are probably not going to be able to make that up before you retire.

How do you plan for this? You pick an asset mix. Traditional mixes include cash, stocks, and fixed income investments. Cash is money in the bank. This includes CDs, money market funds, and traditional checking and savings accounts. Stocks are any equity investment. This includes regular company stock or a mutual fund composed of stocks. Fixed income securities are bonds (company, government, or any other investment that pays a fixed rate). Cash is the least risky investment. Fixed income are also fairly low risk. Stocks are volatile and can change value daily.

As a young investor, I am heavily weighted in stocks. I also have a lot of cash on hand as I will be paying for school for the next two years. I have no fixed income investments as I can take the risk of owning stocks, and will hopefully gain an increased return on those risks.

Taking risks is not always bad. Higher risk investments usually lead to greater returns. The volatility of your investments is something to watch. Do not think that just because you are young you should not be diversified. Do not invest in one sector or one company. Spread the money around.

Just remember, it is worth taking a risk for a reward, but take a risk appropriate for your age. Someone in their late fifties should not have a huge portion of their assets in the stock market, but they should have some. Any good investment adviser can help you pick the right mix. There are great websites that can help you out too.

How are your investments weighted? Tell us why in the comments.