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Investing and Economics Blog

Allocations Make A Big Difference

Why Allocations Make A Big Difference

the closer you get to the time when you want to cash in your investments, the safer you want to get with those investments. Traditionally, stocks are very volatile (ranging from -15% to 20% annual return), while bonds are pretty stable (returning 4-8% consistently).

Good advice, but I believe people need to be much more careful with bonds than many people believe. Long term bonds can be volatile (both due to interest rate and other risks). And with interest rates low this risk is higher. The duration of your bonds (as well as credit/business risk) is a very important factor (the longer the duration the higher the interest rate risk).

I also think the importance of asset allocation increases as your assets increase and the goal gets closer (normally retirement but also could be a child’s education fund…). And I think you need to look at more than just stocks versus bonds (different types of stocks, real estate… are important considerations). I discussed some possible retirement account allocations possibilities for early in life in a previous post.

Related: Lazy Portfolio Results – Investing books – Roth IRA – Dollar Cost Averaging

September 14th, 2008 John Hunter | 1 Comment | Tags: Investing, Personal finance, Tips

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1 Comment so far

  1. Scott Adams on Investing at Curious Cat Investment Blog on October 31, 2008 7:44 pm

    “My own investments did better, precisely because they were more diversified. So now I handle my own investments…”

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