| Quite possibly the toughest part of creating an | | | | materially and psychologically to take on greater risk |
| investment plan comes down to the asset mix. To | | | | (i.e. they can lose more) then they are a more |
| some, this may come as a surprise; many people | | | | aggressive and risk tolerant investor. Those who |
| believe that picking the individual investments, | | | | cannot see their investments reduced are less risk |
| whether pools of securities or individual securities is | | | | tolerant and need to stick to safer investments. |
| the toughest, but it is not. | | | | Because this is such a subjective area, many |
| Picking the right asset mix and not the right | | | | investors fail to give it the appropriate amount of |
| securities, as it turns out, will determine any investor's | | | | consideration until after markets crash -- remember, |
| success with investing because even the right | | | | risk deals with loss, not returns. |
| securities in the wrong plan will cause any investor | | | | 3) Investment Objective. Investors will usually state |
| grief and self-doubt; the right asset mix on the other | | | | that their investment objective is to make millions. |
| hand will allow for proper diversification and allow for | | | | This is actually a financial objective. Their investment |
| even the "wrong" securities to leave minimal damage | | | | objective in contrast will state they plan to achieve |
| in instances where bad decisions actually go sour. | | | | millions through growth, interest or a combination |
| When deciding on the right asset mix, there are | | | | thereof. Realistically, an investor's investment |
| three main areas that investors should target. They | | | | objective will come down to how much growth they |
| are: | | | | want to see, how much income they want to see |
| 1) Target Date. This tells the investors whether they | | | | and how to build a reasonable mix of the two. This |
| should invest in higher growth investments that, | | | | will come down to asset mix, of course, but for |
| given enough time, will return great returns in the | | | | investors who need to earn income to help pay their |
| form of capital appreciation or whether they should | | | | bills or who want to see a minimum, steady stream |
| invest in safer securities that, regardless of how | | | | of income into their portfolios in order to see virtually |
| growth much opportunity they are missing in the | | | | guaranteed growth, the objective may be more |
| short-term they are assured their funds will be | | | | income focused than growth focused. |
| waiting for them. In most cases, the farther out the | | | | By answering these three questions, most people will |
| target date, the more risk or growth investors can | | | | have all of the information they need to construct an |
| accommodate and the nearer the target date, the | | | | appropriate asset mix. This asset mix will change |
| more safe, secure investments the investor should | | | | over time, just as their answers to these questions |
| have. | | | | will, but in sticking to a plan investors will be better |
| 2) Risk Tolerance. This subjective area requires the | | | | able to tolerate unplanned fluctuations in their |
| investor to really evaluate what they feel about risk. | | | | portfolios. These questions will help put such a plan in |
| Specifically, risk of loss. If the investor can afford | | | | place. |