Investing can be a daunting task, especially if you are unsure of where to begin. One popular approach is lifestyle fund allocation, which is a strategy of investing in a diversified portfolio that changes its asset allocation based on an investor’s age and risk tolerance.
Lifestyle fund allocation is a simple and effective way to invest, and it takes the guesswork out of asset allocation by providing an age-based formula for the distribution of investments. The strategy is based on the principle that younger investors should be invested more aggressively, while older investors should be more conservative. This is because younger investors have more time to recover from any market downturns, while older investors may be looking for more stable returns.
To help you get started with lifestyle fund allocation, here is a table that illustrates how the asset allocation for a typical investor might change over time:
As you can see from the table, the allocation of investments shifts towards more conservative options as the investor gets older. This is because older investors may not have as much time to recover from market downturns, and they may also need more stable returns to fund their retirement.
Equity refers to stocks and other securities that have the potential for high growth, but also carry a higher risk. Fixed income refers to bonds and other securities that have a lower risk but also have lower returns. Cash refers to short-term investments such as money market funds and savings accounts.
It is important to note that the table above is just a guideline, and your actual allocation should be based on your individual circumstances and risk tolerance. For example, if you are a more aggressive investor, you may want to allocate more to equity even as you get older.
In addition, lifestyle fund allocation is just one strategy for investing. You may also want to consider other approaches, such as value investing, growth investing, or investing in individual stocks.
In conclusion, lifestyle fund allocation is a simple and effective way to invest for the long term. By following a formula that adjusts your investments based on your age, you can take the guesswork out of asset allocation and focus on building a diversified portfolio that meets your needs. Remember, the key to successful investing is to start early and stay consistent, and to always be aware of your individual risk tolerance and financial goals.