Are you interested in boosting your investment returns while reducing risk? Given the considerable market swings in 20201, it’s important to consider diversifying your investment portfolio to help better manage risk.
Regardless of where you may be in your retirement journey, diversification provides you a simple way to spread your investment dollars across a range of asset classes. An ideal asset mix depends on your age, risk tolerance, and time frame until retirement. Consider the differences between common asset classes including stocks, bonds, and cash to help determine the asset mix that is right for you.
- Stocks – Stocks allow fractional ownership of a company. They offer higher long-term gains but tend to be more volatile. Stocks are a good asset class for investors who have the advantage of time on their side, allowing them to ride out the ups and downs of the market.
- Bonds - Bonds typically have an inverse relationship with stocks, falling when stocks rise and vice versa. There are a variety of bond types including government bonds, municipal bonds or corporate bonds with varying maturity dates. Longer term bonds tend to receive higher returns because they are subject to more interest rate risk. Bonds allow you to produce a more reliable income stream with lower risk compared to stocks.
- Cash – Although having cash reserves on-hand is important, you should limit the amount readily available cash to around three to six months of living expenses2. Consider keeping this cash in a high-yield savings account that can easily be accessed in case of an emergency such as a job loss or other unexpected expense.
While three asset classes above are the most common, it’s important to consult an expert to best determine which stocks and bonds are right for you. For more information on how Masonboro Advisors can help you, please contact us directly at 910-742-0509.
1 http://www.uscannenbergmedia.com/2020/03/13/ups-and-downs-of-stock-market-leads-to-uncertain-economic-future/
2 https://www.nerdwallet.com/article/investing/is-your-emergency-fund-too-big
Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
Indexes discussed are unmanaged and you cannot directly invest into an index. Past performance is not a guarantee of future results.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.