In addition to identifying your goals, it is imperative for us to understand your attitudes towards investments, including your expectations and past experiences. Most importantly, we need to discern your tolerance for risk.
In the long run, stocks outperform bonds and cash. But there have been years when the market declined close to 50%. Can you bear to see your assets drop that much that fast? There are investments in which no one ever lost money, such as FDIC insured bank accounts and Treasury bills. But there have been spells during which these safe investments failed to keep up with inflation. Would you want your entire portfolio to lose spending power over time?
The allocation of assets between stocks, bonds and cash will be the major determinant of the rate of return of your portfolio. You will be well-served owning a mix of stocks and bonds. The mix should not be random but based on your tolerance for risk. Since stocks generally provide better returns in the long run, you want to maximize your stock holdings, but only insofar as you are comfortable with the extra volatility.
We will work with you to determine the appropriate asset allocation targets. As time passes, markets move, and life changes, we will continue to assess the appropriateness of these targets and adjust them if fitting. To the extent you have assets not under our management, we can monitor and assess your overall exposures and adjust holdings under our control to keep you on target.