Investment tune-up Featured

9:06am EDT November 2, 2005

Back in the ’90s, it wasn’t hard to make money in the market. Just about everything worked, and not much thought had to go into diversifying investments.

Since the prolonged market correction from 2000 to 2002, many investors have rethought their investment approach and have chosen a more deliberate strategy of asset allocation.

Your own asset allocation (the mix of stocks, bonds and cash) is typically driven by how much time you have before you will use the funds, how much risk you’re willing to assume to reach your goals and, to some extent, how much you have to invest.

For example, a 40-year-old investing for retirement may choose to allocate 75 percent of his or her portfolio to stocks and 25 percent to bonds and cash in hopes of achieving long-term growth. A 60-year-old, nearing retirement but looking forward to many years of travel and leisure, may instead select a more balanced approach of growth and income, a strategy with an equal split between stock and bond investments.

Today, most investment firms, employer retirement plans and 529 college savings plan sponsors provide investment programs that do this automatically based on your answers to some simple questions. Good investment advisers will typically take a more comprehensive approach, customizing an investment strategy based on your unique circumstances.

But once you have determined your target mix, there may be situations in which changing it over time makes sense.

  • Market movements. The economy and financial markets are constantly changing. Some of your investments may have performed better than others. That means your original mix will be off, possibly exposing you to additional risk that you didn’t plan on.

Or perhaps your adviser sees opportunities in the market that call for increasing your allocation to certain investments while decreasing it in others. Either way, bringing your portfolio in line with your original mix, or to a revised mix, may help smooth the ride through these changing markets.

  • Life changes. New kids, caring for parents, receiving an inheritance or job changes are all situations that might warrant a review of your investment portfolio and possible changes to your investment mix. Many people’s portfolios are out of sync with what is going on in their lives.

Investment strategies that worked while you were single may not be appropriate with a new family. Or, an investment mix designed to provide long-term growth during your working years may not provide the income that you’ll need in retirement.

Whether you manage your own investments or use an adviser, rebalancing your portfolio in light of the economy, the markets and your own personal situation is a smart move.

Rick Wiethorn is a financial adviser at NexTier Wealth Management. Find out more about NexTier at www.nextierwealth.com.