Asset allocation—how you spread your investments among stocks, bonds, cash, and other assets—is one of the most important decisions you can make when planning for retirement. A thoughtful allocation can help you feel secure today while providing the growth you’ll need tomorrow—so you can move confidently toward financial peace of mind.
What Is Asset Allocation?
Asset allocation means dividing your investments across several types of assets within different asset classes—traditionally stocks, bonds, and cash or cash equivalents, with some investors also considering alternatives—to help balance risk and return. Each plays a different role in your portfolio.
Stocks – For Growth
Stocks provide ownership in companies and historically offers the most potential for long-term growth, though they tend to be more volatile. Diversifying among large-cap, small-cap, and international stocks can help spread risk.
Bonds – For Stability and Income
Bonds are loans to governments or companies that pay interest. They’re usually steadier than stocks and can balance risk. Options include government, corporate, municipal, and international bonds.
Cash – For Safety and Flexibility
Cash includes savings, money market funds, or short-term Treasury bills. Though they are not intended to provide growth, cash provides security and liquidity for emergencies or short-term needs.
Alternatives – For Diversification Outside Traditional Markets
Alternatives—such as real estate, commodities, cryptocurrency, or private investments—fall outside traditional markets. They can carry higher risk, and come with some complexity, but may help diversify beyond stocks and bonds.
Diversify Within Asset Classes
Diversification isn’t just about mixing stocks, bonds, cash, and alternatives. Within each asset class, holding a range of investments can help balance risk if an asset class underperforms. For example, stocks may include large-cap, small-cap, and international companies, while bonds can range from government to corporate to municipal issuers.
Factors That Influence Asset Allocation
Several personal factors play a big role in determining the right mix of investments:
- Time Horizon: How long until you will need the money.
- Risk Tolerance: Your comfort with market ups and downs.
- Financial Goals: What you’re working toward—income, legacy, or specific milestones.
Because time horizon, risk tolerance, and goals naturally change over the years, your age can help guide adjustments to your investment allocation.
Key Takeaways by Age
- 20s–30s: Focus on growth with more stocks.
- 40s–50s: Gradually add bonds for stability.
- 60s+: Emphasize capital preservation with some need for income with bonds and cash, while maintaining some stock exposure to support growth for future needs
Bottom Line
Asset allocation is a cornerstone of building a strong retirement plan, and it’s where retirement confidence begins. Balancing stocks, bonds, cash, and alternatives—while factoring in your time horizon, risk tolerance, and goals—helps you stay on track toward the retirement you deserve. And remember, consistency matters. The more steadily you save and invest, the more effective your allocation will be.
You don’t have to navigate these decisions alone. Our Wealth Advisors are ready to partner with you—helping create an asset allocation strategy tailored to your retirement goals, adjusting over time to support you on your path to financial peace of mind.
