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Colleen's Corner

Asset Allocation

Often financial "experts" make asset allocation difficult to understand. My goal in this series of articles is for you to understand asset allocation thoroughly, in an easy to understand format.
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Your Retirement Date

Colleen Mulder-Seward, MBA
Retirement Calculator, Inc.
Your Retirement Date

As with any milestone in your life, your retirement date should be made with careful thought given to all the factors involved.  The factors that affect your retirement are different from those of anyone else.  Your financial goals and objectives, age, health, financial position, risk tolerance, and family needs all play a role in your retirement decision.

The response to the confused retirement investor has been the creation of target date mutual funds.  These funds are easy to spot among the listing of mutual funds, because the fund's name includes the retirement year - for example Fidelity Freedom 2025 Fund.  Don't expect to find a mutual fund for every year - they are usually offered in five year increments. 

Target date funds contain an asset mix of stocks, bonds and cash.  Each of these categories has risk associated with it.  Generally, the more risk you assume, the higher the return.  The relative risk pyramid below shows various investment choices ranked from highest risk and potential return at the top of the pyramid, to the lowest risk and potential return at its base.

Highest risk & return

Options, futures, low-priced or "penny" stocks

Small-cap stocks, low quality stocks, collectibles, mid-cap stocks, low quality or "junk" bonds, specific industry/sector mutual funds

Quality growth stocks or mutual funds, large cap stocks or mutual funds

Lowest risk & return

High quality convertible bonds or High quality convertible bond mutual funds, high quality preferred stock or high quality preferred stock mutual funds, balanced stock and bond mutual funds

Money market accounts or  money market mutual funds, high quality corporate bonds, high quality corporate bond mutual funds, high quality municipal bonds or high quality municipal bond mutual funds

U.S. savings bonds, U.S. treasury issues, federal agency securities, insured savings and checking accounts, insured certificates of deposit

The fund changes its investment mixture and becomes more conservative as the target date nears.  The goal of these funds is to provide the right blend of growth and principle protection of your money for when the target date arrives. 

As mentioned earlier, each retirement need is different for each person.  A fund's allocation may not match your individual the risk tolerance and financial objectives.  Risk tolerance is your tolerance to assume risk.  You can discover your risk tolerance by completing this questionnaire.

You can compare your ideal asset allocation mix against that of various mutual fund companies - as they vary from fund to fund even when they have the same target date.  To find and compare target date mutual funds, start at Yahoo's mutual fund center.  Enter your planned retirement date and click the "search" button.  As seen to the right. Yahoo then displays all matches for your search criteria. 

Once here simply click on any of the blue underlined fund ticker symbol on the left side of the screen.   You will be taken to the screen shown.  Almost there, now click on the "Holdings" link on the left side of the screen.  Now you are at the "Overall Portfolio Composition (%)" for your fund. This is where your print out of funds matching your retirement date comes in handy. Enter the symbol of other mutual funds that interest you from the list into the "Get Holdings for:" area on the right side of the screen. 

Note the composition for each fund portfolio and the one that most closely matches your ideal asset allocation mix will let you sleep the best at night.   

Seeking financial education and careful planning can make this milestone in your life a success.  Consider a FREE subscription to the Retirement Intelligence Information Services newsletter to keep informed of the latest retirement news and education topics like this article has demonstrated.  As George Santayana said, "The wisest mind has something yet to learn."

How do I keep up-to-date on the latest news impacting my retirement?

To keep informed about retirement topics, try a FREE membership to Retirement Intelligence Information Services. At no cost to join, you will receive a bi-monthly newsletter full of financial information to inform and empower you to have a successful retirement. As an added bonus, www.retirementcalc.com will include the Retirement Calculator Software Version 2.0 (a $24.95 value seen live on CBS TV) for FREE. 

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