No matter what type of investor you are, there is one truth that all investors need to figure out before they step in to action. Everyone makes the decision – some just do not know they are doing it. This decision is what the asset allocation of your portfolio will be. It will determine the success of your portfolio over the years, and therefore requires some attention.[ad#tdg-embedded]
I came across a good article at the AAII that lists a number of what they call “the basic truths” of portfolio management and asset allocation. As part of the research for the article, the authors researched four organizations to determine what the broad consensus was for the typical asset allocation models. They broke the asset allocations down four investor types, including High-Risk Investors/ Young Investors, Medium Risk Investors/Investors Approaching Retirement, Low-Risk Investors/Retiring Investors and Retirees, and Investors over age 70. Here is the table they put together:
How should investors use a table like this? My suggestion would be to use this as a start and a general guideline to start and then do more research to nail down your true risk profile and fine tune from there. Go more conservative than you think – this will help you manage your emotions better. The most important thing – pick an asset allocation and stick with it. Do that before you buy your next dividend stock!