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The Allocation Plan

It matters how you allocate among different investment categories - but not as much as some might have you believe.  The big decisions matter more than the teensy increments.  Decide on an allocation plan, and revisit it every six months to make minor adjustments.  

A good rule of thumb is that you should put the same percent amount into bonds as the decade of life you're in.  So if you're in your thirties, have 30% in bonds, 70% in stocks.  In your fifties, be half bonds, half stocks.  And so on.  This will help you grow your money through the years, and keep you out of trouble when you near retirement.

How to allocate within the stock and bond categories?  Start with something like this:

Allocation to Bonds:  When interest rates are low, be patient and use a short term bond mutual funds (unless you have a lot to invest) and some cash.  When rates go up, gradually move toward a mix of cash, short- , medium-. and long-term bond funds, or find a fund that has a blend of these.  Make sure your fund invests in high quality bonds: a combination of US government bonds and highly rated corporates.  

Allocation to Stocks:  Using mutual funds, you'll want to spread your money out across the different categories.  If you only have a little money, you can use a fund that has a blend of categories.  Once you have more than $5,000 to invest in your allocation to stocks, use different funds.  Spread your money into a Large Growth fund, a Large Value fund, a Developed International fund (you could put equal amounts into each).  Then put a smaller amount into a Small company fund and into Emerging Markets.  

That's about it.  If you want a more precise breakdown (like, one with actual hard numbers and stuff), surf the web, or contact us and we'll send an answer or put up a page or something.  We're just trying to keep it simple.


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