Balancing Your Portfolio

Balance describes the mix within your portfolio between different types of investments or, in the case of your retirement savings plan, different types of mutual funds ― stock vs. bond vs. stable value. Since different types of investments have different risks associated with them, finding the right balance within your own portfolio can help you create a portfolio that you will be comfortable with for the long term.

Why is it important to build a portfolio with the appropriate mix of asset classes? As an example, suppose your original plan for retirement consisted of having a mix of 80 percent equity funds and 20 percent bond funds. You have determined, based on historical trends, that this mix will give you approximately 8% return, enough to reach your investment goal. However, if you have put assets in less risky investments, the annual return may only be 4%. In this scenario, if you remain in the less risky investments you will fall short of your retirement investment goal.

By establishing the right mix of stocks, bonds and cash equivalents, you have a way of meeting your investment goals within the timeframe you set. Abandoning your original plan may result in falling short of meeting the retirement goals you originally set.

Balance, therefore, is an important concept to remember when designing your portfolio. By selecting the right balance in your portfolio, you can design a portfolio that best matches your tolerance for risk. However, once you have established your ideal portfolio balance, it is important to remember that the market never stands still. As time passes, you will want to rebalance your portfolio periodically for maximum results.

• Learn more about balancing your assets and selecting the right portfolio for you