Asset Allocation and Retirement: Do You Need to Make a Change?
Many investors who are approaching retirement are wondering if they will need to change their asset allocation when they are no longer collecting a paycheck. The information available from the popular press and many advisors is to generally guide retirees to change their allocation to one that is more conservative. This is usually interpreted to mean that the investor should lighten up on stocks and put more of their investments into bonds. Retirement should not necessarily mean that a retiree should change their asset allocation rather diversify allocation to reduce the risk of weighted average of its component parts (aaii.com).
Diversification depends on not only the quantity of assets in a portfolio but the performance of each one in the economic market and how they affect each other. The most common asset allocation practice is to diversify between stocks bond and cash (CDs or money markets). Yahoo Finance offers the following advice when choosing asset allocation; Investor questionnaires on risk tolerance, Life cycle investing and Rule-of-thumb formula (aaii.com). However the most common allocation method is the resource/goal allocation method that allows an individual based on personal attitude to establish a time prospect for the investment to mature, choose an asset and determine how much to invest in (aaii.com).
Asset allocation can also be determined by considering historical data associated with its resources. The article suggests Callan Associates (www.callan.com) and Wilshire Associates (www.wilshire.com) as two comprehensive data base companies that collect performance on thousands of institutional investments and mutual fund products. There are also a barrage of free websites that offer data on investments and also what the finance world refer to as “whisper numbers” a term referring to the biggest expectations on investments. These sites allow you to change many different...
Please join StudyMode to read the full document