Rules of thumb for keeping your portfolio on track

Maintaining an appropriate asset allocation is important at every stage of your investing life. Kevin E. Miller, CFP®, of Vanguard Personal Advisor Services®, and Michael DiJoseph, CFA, of Vanguard Investment Strategy Group, offer some “rules of thumb” for keeping your portfolio on track.

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Amy Chain: We’ve talked a lot tonight about portfolios at various stages so a lot of folks are writing in and asking us, how should I be determining what my asset allocation should be at any given stage? Maybe we can talk through some basic sort of basic rules of thumb. Want to kick this off, Kevin?

Kevin Miller: Sure. So, again we look at it based on what your level of risk is and then the number of years out, and we typically work backwards from your retirement year in say a few year increments, and then generally you say, okay over each of those time periods you want to gradually reduce the amount of risk on this fixed schedule. The fancy term is called the glide path but, really, it’s just this systematic reduction so that, again, it’s not market dependent and you’re reducing the risk over time so that as you get closer to retirement, you’re set and you’re a little less concerned about what the market’s doing at that point.

Amy Chain: And are you using the word risk to represent an equity allocation in the portfolio?

Kevin Miller: Really both. Investors are typically worried about not always stock market, but we get a lot of questions about bonds and potential for rate increases and how does that impact bonds in the short run.

Amy Chain: Any thoughts to add?

Michael DiJoseph: I would add you know risk goes both ways. So, there’s the risk when you’re heavily invested in equities, there’s the risk that you could lose money. When you’re not, there’s the risk that you could miss out on that especially if you have the ability to take that risk and you’re kind of not investing in the stock market a little bit, you could lose some purchasing power and maybe not reach the goals that you set out to reach.

Important information

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. 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.

Investments in bonds are subject to interest rate, credit, and inflation risk.

Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.

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

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