{"id":244,"date":"2018-11-22T13:29:25","date_gmt":"2018-11-22T13:29:25","guid":{"rendered":"http:\/\/www.personalfinanceafterfifty.com\/retirementfinancialmanagement\/?p=244"},"modified":"2018-11-22T13:29:25","modified_gmt":"2018-11-22T13:29:25","slug":"personal-finance-after-50-asset-allocation","status":"publish","type":"post","link":"http:\/\/www.personalfinanceafterfifty.com\/retirementfinancialmanagement\/uncategorized\/personal-finance-after-50-asset-allocation\/","title":{"rendered":"Personal Finance After 50 – Asset Allocation"},"content":{"rendered":"

Most Investors want to grow the value of their investment portfolio as much as possible. However, as you approach retirement, you might shift your thinking. The proper allocation for your investment will change over the course of your life. When you\u2019re 50 years old, you are much closer to retirement than you were in your 20 s, and your investment allocation should reflect that. However, there is no \u201cone- size- fits- all\u201d way to diversify a portfolio, regardless of your age.<\/span><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0When you invest your money, you need to decide how to proportion{allocate} it between risky, growth- oriented (such as stocks) whose value fluctuates , and more stable, income -producing investments (like bonds). But while allocating your investments, you should take into account your own personal needs, experience and personality i.e. risk taking capacity. How soon you\u2019ll need the money and how tolerant you are of risk are two important determinants when deciding how to allocate your money.<\/span><\/p>\n

\u00a0\u00a0\u00a0Risk Tolerance<\/b> : –<\/span><\/p>\n

\u00a0This factor is particularly true if you\u2019re already retired or you are in the age of 50- 55 years. In this case you\u2019re close enough to retirement and you don\u2019t have time to recover from a massive market sell- off. To protect your retirement nest egg , at age 50 you should consider shifting at least part of your portfolio from riskier investments like stocks to more stable option, like bonds and CDs. Your asset allocation between stocks and bonds depends on your risk tolerance. Are you risk averse, moderate or risk loving?.<\/span><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Investments And Allocation <\/b>: –<\/span><\/p>\n

\u00a0\u00a0One general rule of thumb when it come to portfolio allocation is to subtract your age from 100<\/b>. The resulting number is approximate percentage you should allocate to stocks. For example, at age 50 you should allocate 50 percent( 100-50= 50)in equities whereas ,at age 70, this is approximately 30 percent (100-70=30). This will be further modified depending on your investment objective and risk tolerance.<\/span><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0Your asset allocation also depends on the importance of your specific market portfolio. For example, most would treat their 401(K) or IRA as a vital part of their retirement strategy because it is or will become their largest portfolio.<\/span><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0<\/span>\u00a0\u00a0\u00a0Sticking With Your Allocation<\/b> : –<\/span><\/p>\n

\u00a0\u00a0\u00a0Your goals and desire to take risk should drive the allocation of your investment dollars. As you get older, gradually scaling back on the riskiness (and therefore, growth potential and volatility) of your portfolio makes sense. But don\u2019t play or tinker with your portfolio daily, weekly ,monthly or even annually as a practice. <\/span>Don\u2019t engage in Trading<\/b>. Jumping on to a \u201cwinner\u201d and dumping a \u201closer\u201d may provide some short- term psychological comfort, but in the long- term, such an investment strategy often produces below -average returns. The closer you get to retirement, the more you\u2019ll want to protect your funds, generally by shifting to more conservative allocation. In addition to funding your lifestyle with current income, you\u2019re also reducing the number of years in retirement that you\u2019ll need your saving to last. All of these factors should play a role in determining your allocation from age 50.<\/span><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0<\/span>\u00a0Various Asset Allocation Models<\/b> : –<\/span><\/p>\n

\u00a0\u00a0\u00a0\u00a0There are many asset allocation Models which have been developed by the financial experts. No one model can be recommended for all the investors as their objectives, goals, risk tolerance and personality differ. Some of these models are : –<\/span><\/p>\n

(i) Conventional allocation model.<\/span><\/p>\n

(ii) New Life allocation model<\/span><\/p>\n

\u00a0(iii) Survival Allocation Model<\/span><\/p>\n

\u00a0(iv) Nothing to lose allocation Model<\/span><\/p>\n

\u00a0(v) Financial Samurai Model of Investment<\/span><\/p>\n

These models cater to the need of various spectrum of individuals having different age, priorities, funds requirements, time horizon and risk tolerance. One of these models i.e. Conventional \u00a0Model of Asset Allocation is explained below. This model is suitable for the individuals who:-<\/span><\/p>\n

\u00a0— Believe in conventional wisdom and don\u2019t want to over complicate things.<\/span><\/p>\n

\u00a0— Expect to live to the median age of 78 for men and 82 for women<\/span><\/p>\n

\u00a0— Are not interested in the stock market, bond market or economics and would rather have someone manage their money instead.<\/span><\/p>\n

\u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a0<\/strong><\/span>Proper Asset Allocation of Stocks & Bonds<\/strong><\/p>\n

\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Age\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Stocks\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Bonds<\/strong><\/span><\/p>\n

\u00a0 \u00a0 \u00a0 \u00a0 up to 25\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 100 %\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a00 %<\/span><\/p>\n

\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 30\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a070 %\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 30 %<\/span><\/p>\n

\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a035\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 65 %\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 35 %<\/span><\/p>\n

\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 40\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a060 %\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 40 %<\/span><\/p>\n

\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a050\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 50 %\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a050 %<\/span><\/p>\n

\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a060\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 40 %\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a060 %<\/span><\/p>\n

\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a070\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a030 %\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a070 %<\/span><\/p>\n

\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a075 +\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 25 %\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 75 %<\/span><\/p>\n

\u00a0\u00a0\u00a0\u00a0Whereas, New life Asset Allocation model recommends an investment of 70% and 30% in stocks and bonds respectively for the personnel in the age of 50 years against 50: 50 given above.<\/span><\/p>\n

\u00a0\u00a0\u00a0\u00a0<\/span>\u00a0\u00a0\u00a0CONCLUSION<\/span><\/b>: —<\/span><\/p>\n

\u00a0Ideally, your asset allocation should let you sleep well at night and wake up every morning with vigor. When it comes to investing, you need to calculate your existing investment exposure and invest accordingly. Don\u2019t let anybody force you into an uncomfortable situation. But take a proactive approach to your retirement portfolio and don\u2019t be shy of taking moderate risk with your investments even at this age. Take the following into consideration while allocating your assets : –<\/span><\/p>\n

\u00a0\u00a0(i) What is your risk tolerance on a scale of 0- 10?<\/span><\/p>\n

\u00a0(ii) How stable is your primary income source? \u00a0<\/span><\/p>\n

\u00a0\u00a0(iii) How many income streams do you have ?<\/span><\/p>\n

\u00a0\u00a0(iv) What is your money strength ?<\/span><\/p>\n

\u00a0\u00a0(v) What is your knowledge about stocks and bonds ?<\/span><\/p>\n

\u00a0\u00a0(vi) How long is your investment horizon ?<\/span><\/p>\n

 <\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0<\/span><\/p>\n

\u00a0<\/span><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Most Investors want to grow the value of their investment portfolio as much as possible. However, as you approach retirement, you might shift your thinking. The proper allocation for your investment will change over the course of your life. When you\u2019re 50 years old, you are much closer to retirement than you were in your … <\/p>\n

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