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Asset allocation for fund investors

Consider your spending needs
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Your tolerance for risk goes hand in hand with what you can afford to lose. Though you may have no problem snoozing through tectonic shifts in the stock market, liabilities on your balance sheet can be hazardous to your financial well-being. Liabilities can appear in the form of debts or future cash needs.

"If you are someone who has a spending need -- tuition, spending in retirement -- that you can factor in and put a present value on, incorporate that as a liability as you're doing your balance sheet analysis," says Dorsey Farr, Ph.D., investment strategist and portfolio manager at French Wolf & Farr in Atlanta.

"That means that most people can take less risk than they might otherwise think because they have to take into account that planned spending or liability when they're doing asset-liability modeling," he says.

Some people just cannot stomach the thought of losing money even if they own their home and may never need to touch a penny of their investments. Account for your personality when considering risk tolerance to avoid bailing out of high-risk investments at the slightest sign of turbulence.


 

 

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