Asset Allocation

Asset allocation is, in my opinion, the most important way to diversify your investment portfolio and minimize risk.

My accounts are with Schwab and I follow their Aggressive Allocation plan (I’ve got approximately 40 years until retirement – as I get closer I’ll shift to Moderate and then Conservative).

My portfolio is a bit out of balance right now (I may have been a bit too aggressive in my first few years of investing and I purchased large cap stocks almost exclusively).

Twice a month, I make an automatic transfer into my Roth IRA ($5000 per year divided by 24 = $208.33 each transfer).

I’m focusing on buying index funds at this time and I have choosen 3 Schwab funds (Schwab funds have no transaction fee/commission for Schwab customers to buy and sell which allows me to make frequent small purchases and take advantage of dollar cost averaging). These funds are SWPIX (S&P 500 Large Cap Index Fund), SWINX (International Index Fund), SWSMX (Small Cap Index Fund). I also keep my cash inside CDs within my investment accounts for maximum interest.

So twice a month when I get an email notification that my automatic transfer has been received, I log onto my Schwab account. Check my asset allocation chart. See how much extra cash I have and invest that in whichever one of my large cap, small cap, or international areas is most out of balance.

As I get older, I’ll adjust to moderate or conservative allocations by putting my new money into fixed income or cash rather than buying more stocks.

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