Finding the Right Asset Allocation

How you invest across stocks, bonds and cash—your asset allocation—is one of the keys to long-term success. That's because these three basic asset classes respond to the market differently. When one is up, another can be down.

For instance, stocks are the most volatile and respond more quickly to market movements. Bonds, on the other hand, can provide a more stable return. Investing in both can help smooth out volatility.

Choosing the allocation that's right for you

How you allocate your assets should be based on three things:

• Your goals—both short- and long-term
• The number of years you have to invest
• Your tolerance for risk

Basing your asset allocation on these three important factors will make it easier for you to stick to your plan over the long term—even during years when there's a loss.

Here are some model asset allocation plans that offer different balances of risk and return.

Strategic asset allocation models

Conservative Allocation

• 15% Large-Cap Equity
• 0% Small-Cap Equity
• 5% International Equity 
• 50% Fixed Income
• 30% Cash Investments 

Moderate Allocation

• 35% Large-Cap Equity
• 10% Small-Cap Equity
• 15% International Equity 
• 35% Fixed Income
• 5% Cash Investments 

Aggressive Allocation

• 50% Large-Cap Equity
• 20% Small-Cap Equity
• 25% International Equity 
• 0% Fixed Income
• 5% Cash Investments 

Diversification and asset allocation do not eliminate the risk of investment losses. International investing may involve greater risk than U.S. Investments due to currency fluctuations, unforeseen political and economic events, and legal and regulatory structures in foreign countries. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. The Schwab Center for Financial Research is a division of Charles Schwab & Company, Inc. Source: Schwab Center for Financial Research.

 

Need help?

For an easy way to choose an asset allocation plan, fill out the investor profile questionnaire. It will help you define your attitude toward risk and suggest an asset allocation plan that matches it.