Asset allocation means spreading your investment dollars among different types of investments (like stocks, bonds and cash equivalents like money market funds). You decide what percentage of your money you’ll invest in each investment type. These 3 major factors will impact your decision:

• Your investment goals: Before you start, you’ll need to decide what you want to accomplish. Do you have more than one goal, and are they short- or long-term goals? Short-term goals can range from a few months to a few years (vacation, down payment). Long-term goals like saving for a child’s education or your retirement can span several years or even decades.
  
  
• Your age or time horizon: When will you need the money? For example, people who are within a few years of retirement would likely want to invest conservatively, while those who still have decades before they need the money may want to invest more aggressively. Some financial planners say a good guideline is to subtract your age from 110–120 to determine what percentage you should have in stocks.
  
  
• Your risk tolerance: Investors who can ignore temporary market volatility might be able to tolerate the higher risk of stocks. If you’ll lose sleep during market dips, you may be happier with a more moderate level of risk, even if you may earn less. In general, a moderate asset allocation could include 50–70% in stocks. Here’s an example:

60% IN STOCKS / 30% IN BONDS / 10% IN CASH EQUIVALENTS

Of course, your strategy for portfolio management will depend on your own circumstances and may change over time. Set up an appointment with one of our Financial Advisors to review your portfolio today.

Diversification helps ensure you don’t have too much of your money in any one sector, industry or company. Instead, you put it in a mix of investment types. That way, you’re less likely to take a big hit if there’s a downturn that affects a single area. Our Financial Advisors are available to help you determine what kind of diversification is right for your portfolio.

Some of the more common methods investors use to diversify include:

Investing by sector: Investors choose different companies within different sectors like energy, technology, transportation, banking and health care.

Investing in funds: Funds include a mix of different securities all in one basket. Some investors prefer investing in funds as they offer more options than they could afford on their own and are often less volatile. It can be a good choice for those who want to invest across a broad swath of the economy.

Investing by company size: Many investors choose their securities based on the value of the companies they’re considering. Market capitalization looks at the total market value of all a company’s shares. They’re typically grouped from Mega-cap to Micro-cap company stock. Generally, investing in large-caps is considered a conservative strategy. Small- and micro-cap investments are considered more aggressive, particularly for startup operations. Mid-caps are a middle ground.

Investing using robo-advisors: Many robo-advisors, also called automated investment advisors, will do the work of diversifying for you—balancing market conditions against your finances, goals and risk tolerance. Navy Federal Investment Services Digital Investor makes investing easier. You can choose from fully automated, pre-built bundles or picking and managing your own investments.

Rebalancing and reallocation are used in response to market changes or changes in your portfolio or preferences. In general, it means resetting your portfolio to align with your current asset allocation plan or changing your allocations to reflect new preferences. Ask yourself, “What percent do I want to devote to stocks, bonds or cash equivalents?”

Certain events will cause you to liquidate some of your funds (paying for college, retirement). This change in your assets will mean you’ll probably need to change the allocation of your stocks, bonds and cash equivalents. Another opportunity to rebalance occurs when interest rates trend up or down.

There are some funds that offer to automatically rebalance and reallocate for you, like an S&P 500 Index Fund. There are also exchange-traded funds (ETFs) or mutual funds for sector investing that will spread your dollars among a number of companies in a specific industry. Index funds, ETFs and mutual funds all require analysis and often professional advice to match these with your investment goals and risk tolerance. It’s a great opportunity to talk to a Financial Advisor.

One concern many investors have is knowing the best times to buy and sell to maximize their earnings. Enter dollar-cost averaging. Dollar-cost averaging is an investment strategy where you make consistent investments at regular intervals, like with your 401(k).

Advocates believe that dollar-cost averaging helps even out market highs and lows over time. Plus, since you’re investing regularly, you’re more likely to catch the great days. Historically, people who invest this way tend to have portfolios that perform better over time. One way to simplify this process is to set up automatic transfers from your bank to your investment account. Our Financial Advisors can help you figure out how often and what to invest in.

Value investing is a strategy that involves finding undervalued (underpriced) investments that have the potential for long-term growth. Its goal is earning a better-than-average dividend return. Investors typically look at companies’ financial statements, cash flows and other key metrics to identify promising opportunities for future growth in market value. Some of these metrics include the value of the stock in relationship to its multiple earnings, future earnings or in relation to asset value.

Using this strategy, however, requires a significant time commitment and the ability to effectively analyze financial data. In addition to the time you’ll be spending searching out opportunities and researching the companies, you’ll need to be patient. It’s likely the stocks won’t increase in value quickly. It may even take years. Our Financial Advisors can make this easier on you by providing expert advice on which opportunities to invest in.

Who wouldn’t love their investments to have rapid, high growth? Using a growth investing strategy has the potential to give you just that. You’d look for stocks most likely to increase in value faster than others in their industry or in the market in general. The goal is to eventually sell these stocks for a big profit. Technology stocks and new industries typically fall into this category.

With growth investing, you’ll need to do a fair amount of research. It’s important to stay current on financial news and market cycles. In a recent Forbes article on growth investing, Marcia Wendorf suggested also searching for new patents and new (emerging) industries, and considering investing in growth mutual funds or ETFs to diversify your growth-oriented portfolio.

Three more things to keep in mind about growth investing:

1. While growth stocks can deliver substantial gains, they can also be more volatile. Investors need to carefully assess their risk tolerance when venturing into growth investing.
2. High growth companies often depend on financing. If rates rise and it becomes expensive to borrow, their growth may slow and their stock market value may be negatively impacted.
3. These investments may not realize their full growth potential as quickly as you hope.

In a nutshell, passive investing is a buy-and-hold or set-it-and-forget-it strategy. Passive investors tend to buy into funds/indexes that do the work of managing and diversifying their portfolios for them, which provides less risk. Because you aren’t frequently trading, you’re likely to pay less in fees and taxes, so you have more money for investments.

Active investing, as you might expect, means you or a Financial Advisor take an active role in researching, buying and selling stocks by closely following and regularly managing your portfolio. This way, you’re more likely to be able to take advantage of short-term opportunities. You’ll also know quickly when stocks aren’t performing well or if they become too risky.