Determine your asset allocation

An appropriate asset allocation is crucial to your investment success. Here’s how to determine what percentages to hold in stocks, bonds, and cash.

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Amy Chain: And knowing that we have many viewers tonight who are either just getting started or don’t have a plan, maybe we can talk about some of the first steps to take in deciding what your asset allocation should be and how you should be spreading that across particular investments. Maria, you want to kick us off?

Maria Bruno: Sure. You know, when we think about asset allocation, I like to focus primarily on stocks and bonds. And the two key things to think about are time horizon, and we’ve talked about that already, in terms of the longer the time horizon, the focus should be on keeping up with inflation or outpacing inflation, and, traditionally, equities play a role there.

Now, certainly, that may expose you to more market risk, so volatility along the way, but keep the long-term focus. So, for someone who is starting out or even nearing retirement, an equity-centric portfolio, a diversified global portfolio is very prudent. And even as you’re approaching retirement, when we think about spending rules of thumb, it’s all predicated upon having a balanced portfolio. And by balanced, we typically say 60% to 40% equities. So, as you gear into retirement, it’s still important to have that equity-heavy portfolio, yet globally diversified.

Christine Benz: One rule of thumb I often tell people to use is think about your spending needs in retirement and use that to figure out how much you should have outside of the stock market. So, if you have money that you don’t expect to need for another ten years, that’s probably fine being invested in stocks. But if you have part of your portfolio that you expect to spend within the next decade, stocks are too risky. They historically have had big ups and downs over ten-year periods, so you would want to have that portion of your portfolio in the safe stuff like cash, like bonds.

Important information

For more information about Vanguard funds, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.

All investing is subject to risk, including the possible loss of money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss.

This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.

Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor.

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