The investor is a young grad, recently out of college with his/her first “real” job. The goal: saving for retirement. He has a higher risk tolerance, and his investment vehicles are all mutual funds. This is the asset allocation plan he and his adviser might draft.

Plan: Young single
Extra advice

Apart from the portfolio, you need two additional accounts at this stage: one for an emergency fund, the other for special large purchases, like a home or car, says Peggy Cabaniss, CFP. Keep the accounts liquid, but you can earn some return with a high-interest savings account, money market account or CDs.

“To limit risk, I prefer using (international) funds that invest primarily in developed nations with a small percentage to emerging markets,” Cabaniss says.

“You will find some advisers advocate strictly for growth (stocks), you will find some advisers advocate strictly for value,” says Cabaniss. “But there are good studies showing both produce good returns.

“If you’re in a high tax bracket,” look for tax-free bonds, Cabaniss says. If not, she recommends “a fund with a good mix” of short and intermediate bonds.

Source: Portfolio drafted by Peggy Cabaniss, CFP, president of HC Financial Advisors in Lafayette, Calif., and past chairman of the national board of the National Association of Personal Financial Planners.