Accumulation planning addresses an individual’s investment needs, asset allocation, asset location, and the suitability of different types of securities in light of your goals, risk tolerance, and time horizon.
Asset allocation is used to distribute your investable assets among a variety of investment categories. This process aims to:
- Reduce overall investment risk
- Create more reliable investment forecasts
- Improve the risk/return trade-off of your portfolio
Accumulation planning also involves the choice of investments for your portfolio. Investments include stocks, bonds, mutual funds, and exchange-traded funds. Other types of investments, such as separately managed accounts or options, may be used for certain purposes, such as tax management or to protect against risk.
Some situations require different expertise than typical investment portfolio implementation. These situations usually pertain to employer-related retirement plans and stock options, margin strategies, and real estate exchanges.
Most investors understand that as risk increases, the potential for return also increases. But there is a point for every individual where the level of risk is not worth the potential return. The goal of asset allocation is to provide you with the risk/return scenario that is most comfortable for you.