investing

Asset allocation for fund investors

A moderate strategy for "Ethel Equilibrium"
Next
5 of 7
Back
text

A moderate asset allocation strategy involves a higher allocation to stocks than does a conservative strategy. Stocks are generally more risky than bonds for a few reasons.

"An equity is a security which is a residual claim on the assets of a firm. If there is a bankruptcy, other folks get paid before the equity owners. In exchange for coming last in line, there is potentially more upside," says Farr.

Upsides of stocks include possible dividend payments and increases in share price, also called capital appreciation.

To find the best mutual funds for your allocation plan, Mladjenovic recommends first determining the appropriate category and then filtering down the choices from there.

"People often choose the (fund) that is just in the wrong category," he says. He cites an example in which an adviser put his client's college fund into an Internet stocks fund.

"I thought it was a ghastly decision," he says. "In that fund, they could have chosen the greatest Internet stocks in the world, but it was too great a risk," says Mladjenovic.

When evaluating actively managed funds (as opposed to index funds), compare their cost, management tenure and their performance relative to their peers and benchmark.


 

 

advertisement

          Connect with us
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

CDs and Investment

Start retirement savings at 24?

Dear Dr. Don, At age 24, I recently started a job working for a corporation. I'm interested in individual retirement accounts. I'd like to look at investing in stocks and bonds and learn more about choosing a 401(k) plan.... Read more

advertisement

Blog

Jean Chatzky

Jean Chatzky: Bad month for the market?

How should you react to headlines that tell you a crash is imminent?  ... Read more

Partner Center
advertisement

Connect with us