You may not have initially put much thought into the amount of risk you are willing to take with your retirement savings. Taking more risk for the possibility of higher returns comes with a higher risk of fluctuation in value. As you develop a better idea of your needs and expectations, take the time to make sure your investment strategy aligns with your tolerance for risk and your time horizon. As your savings grow, it’s important to review and understand your asset allocation. Asset allocation is how you distribute your savings among the different types of investments, such as stocks, bonds, and cash. 

• Your asset mix is a major determinant of your portfolio returns and the variability (risk) of those returns.
• For instance, a portfolio that holds 80% bonds and 20% stocks will provide a return and risk pattern that is typically very different from that of a portfolio holding 15% bonds and 85% stocks.
• Maintaining an appropriate asset allocation is critical to aligning your investment strategy with your overall investment objectives.

As a younger investor, you can afford to hold more stocks or stock mutual funds as a percentage of your retirement savings.

• You can get the most benefit from potential long-term gains and can potentially recover from short-term losses.
• Many people make the mistake of being too conservative with their funds even when they don’t need the money for 30 or 40 years.
  

Here are some ideas to consider:

• Mutual funds and exchange traded funds give you exposure to many more stocks and bonds than you could afford to purchase individually.
• A target date mutual fund can be a cost-effective way to build a well-diversified portfolio. It automatically adjusts your asset allocation to become more and more conservative the closer you get to retirement (the “target date”).