Assessing your goals
As you diversify your portfolio among different subclasses,
or categories, of investments, you need to take your individual financial situation and goals into account.
For instance, let’s say you’re planning to sell some of your investments in the near future to pay for your daughter’s college tuition. You’d want to think twice before investing your income-producing assets in long-term bonds, or seeking your growth in extremely volatile investments, such as small-company stocks.
On a different note, let’s say you have a guaranteed pension to look forward to when you retire. In that case, you may be able to pursue a more aggressive strategy in your personal portfolio, including small company stocks and perhaps some higher-yielding corporate bonds — especially if your retirement is still a ways off.
But if your retirement is only a few years away, and you’ll be dependent on your portfolio as a substantial source of income, you may want to diversify your portfolio with typically more stable, income-producing investments, such as blue chip stocks, top-rated corporate bonds, municipal bonds,and Treasurys.
There’s no ideal diversification formula that’s right for everyone — it depends on your goals, your financial situation, and your tolerance for risk. |
Don Kittell
