FINANCIAL PLANNING AND ASSET ALLOCATION

By Anthony Morgillo

Financial planning begins with getting to know you, your family, and your current financial situation. We ask about your financial concerns and your goals for the future. The financial plan provides a roadmap for you to follow to achieve your financial goals. It is a living document that we review together regularly and update whenever you encounter life changes, such as a change in marital status, retirement, an inheritance, or sale of a business.

Preparing for the long term is a process that involves research and careful consideration of both your short and long-term goals. Our financial team can help you be more prepared to create financial strategies that best suit your situation and ensure long-term success.

A sound portfolio management strategy begins with asset allocation—that is, dividing investments among the major asset categories of equities (stocks), bonds, and cash. You can then make finer distinctions within each broad category. For example, within the equity category, you could diversify among large company stocks, small company stocks, and international stocks; and within the bond category, you could separate short-term and long-term bond investments. Since the various investment categories have different characteristics, they generally don’t rise or fall at the same time. Consequently, combining different asset classes can help balance risk and may improve the overall return of a portfolio.

The main objective of asset allocation is to match the investment characteristics of the various investment categories to the most important aspects of your personal investment profile—that is, your risk tolerance and your time horizon.

Investing according to your risk tolerance will help keep you from abandoning your investment plan during times of market turbulence. Finding an appropriate match means balancing your tolerance for risk against the different volatility levels of various asset classes. For example, low risk tolerance may dictate a portfolio that emphasizes conservative investments, while sacrificing the potentially higher returns that usually involve greater degrees of risk.

Asset allocation is more a personal process than a strategy based on a set formula. Building an investment portfolio that is right for you involves matching the risk-return tradeoffs of various asset classes to your unique investment profile. It may be prudent to consult with a financial professional to help determine the investment mix that is right for you.