by Donn J. Sinclair MBA – May 26, 2022
Asset allocation is the mix of investments you select for your IRA. Specifically, what share of your IRA portfolio do you have invested in stocks, bonds, cash, and any other asset classes. Your IRA could be a Traditional IRA, IRA Rollover, Roth IRA, SEP-IRA, or SIMPLE-IRA. Your temperament for risk should be a major criterion in your selected asset allocation mix.
Finding Your Mix
The asset allocation concept is relatively simple: Don’t put all your eggs in one basket. Sometimes, the implementation may be somewhat more complex. Your chosen asset mix for your IRA depends largely on your time horizon, your personal financial situation, and your risk temperament. Some personal financial considerations include: will you and/or your spouse continue to work seasonally or part-time during retirement; what are your retirement savings to date; the percentage of your retirement savings that are post-tax or are pre-tax(IRA, 401k, etcetera).
The length of time you have to invest before you will need your retirement funds is your time horizon. Your IRA portfolio may have several time horizons because you have multiple financial goals. At times the different financial goals may seem to be in conflict.
Your Tolerance or Risk Temperament
This is your emotional willingness and financial ability to take risk in pursuit of reward with your IRA. You should examine your income, your assets, your responsibilities, and your ability to cope with the inevitable stock and bond markets ups and downs in calculating your risk tolerance. When your household is pursuing IRA financial goals, then you should also consider your spouse’s risk tolerance.
Rebalance Your IRA Portfolio
Once you calculate an IRA asset allocation that feels right for you, then you should periodically monitor your allocation. A portfolio that starts out with70% stock funds and 30% bond funds, may shift to 60% stock funds and 40% bond funds. This happens if your bond funds should outperform your stock funds for a length of time. Conversely, if stock funds outperform bond funds, then your IRA asset allocation portfolio may be overweight in stock funds.
You should establish regular time periods to review your IRA portfolio, and rebalance your asset allocation as necessary. Should your IRA get out of alignment, then you may rebalance your portfolio by selling or exchanging assets in one category, and buying or exchanging assets in another. Pay attention to any rebalancing costs.
Changing Times and Course
As your time horizon shortens, and you get closer to your financial goals, then your ideal IRA asset allocation should change to fit your new situation. Normally you should pursue a more conservative asset allocation when you have less time to reach your financial goals. Life changes including: having children, caring for aging parents, loss of employment, and adverse health may also impact your financial goals and risk tolerance. Your IRA asset allocation should change accordingly.
A Few Words About Risk and Reward in Your IRA
You should carefully consider any savings and investment vehicle’s objectives, risks, expenses, and rewards. Not all savings and investment vehicles may be appropriate for everyone. Every individual is unique, has their own set of financial circumstances, and comfort level with saving and investment risk. Also, prior to any IRA decisions or IRA investing, you should carefully read the available material to better understand the specifics of your selected IRA savings or IRA investment vehicle.
You should consult your tax advisor or www.IRS.gov for more information. The above information is intended as educational information and not as investment advice. This is a great time to check and update the beneficiary designations on your Traditional IRA, Roth IRA, and any IRA Rollover.
Updated by Donn J. Sinclair, MBA
@Sinclair Financial Solutions
in Charlotte NC and Rock Hill SC
May 26, 2022 (803)329-0609
@Sinclair Financial Solutions is independently owned and operated. Donn J. Sinclair, MBA is insurance licensed in NC & SC (NIPR NPN#1722815). Investment Advisory Services offered through Prosperity Wealth Management, Inc., 2333 San Ramon Valley Boulevard, Suite #200 – San Ramon, CA 94583. Securities offered through Fortune Financial Services, Inc., 3582 Brodhead Road, Suite #202 – Monaca, PA 15061; branch office of record located at 948 Myrtle Drive Rock Hill, SC 29730, Member FINRA/SIPC. Sinclair Financial Solutions, Prosperity Wealth Management, and Fortune Financial Services, Inc are separate entities. SC Real Estate License #76530, and NRDS #554027312. Month 00, 0000