Picking an asset mix
Different asset mixes meet different needs
Choosing investments isn't a one-size-fits-all exercise. However, there are certain broad principles that apply to picking an asset mix.
Your asset mix should align with your situation: how much time you have until you'll need the money, and how much risk you can take and still sleep at night.
The way your account is divided among different asset classes, including stock, bond, and short-term or "cash" investments.
Usually refers to investment risk, which is a measure of how likely it is that you could lose money in an investment. However, there are other types of risk when it comes to investing.
1. When do you need the money?
If you're not planning to retire for decades, you have plenty of time to ride out any temporary downturns in your account balance. So you can afford to take on more risk in the hopes of getting higher returns.
If you're getting close to retirement, however, you won't have as much time to wait for the market to bounce back if it hits a rough patch. In this case, you might be better off in an asset mix with lower risk.
But be careful not to be too conservative—your account needs to continue growing enough to last you through several decades of retirement!
2. How much risk are you comfortable with?
Some people can easily ignore the day-to-day changes in account balance that sometimes come with more aggressive investments. Instead, they focus on the overall progress toward their goal. Others lie awake at night fretting about what their investments will do tomorrow.
It won't do you any good to constantly worry about your investment decisions, and it probably won't be much fun either. So choose a level of risk you know you can live with.
The profit you get from investing money. Over time, this profit is based mainly on the amount of risk associated with the investment. So, for example, less-risky investments like certificates of deposit (CDs) or savings accounts generally earn a low rate of return, and higher-risk investments like stocks generally earn a higher rate of return.
A conservative portfolio is relatively safe from investment risk (although there's no guarantee it won't lose money). Because risk and reward are related, a conservative investor can also expect returns that are, on average and over time, lower than those of someone with a moderate or aggressive portfolio.
An aggressive portfolio is subject to a relatively high level of investment risk. Because risk and reward are related, an aggressive investor can also expect returns that are, on average and over time, higher than those of someone with a moderate or conservative portfolio.
Putting it together
Our experts analyze decades of data on market returns and investor behavior to find the asset mix that makes the most sense for you, based on your timeline and comfort with risk.
LET VANGUARD DIGITAL ADVISOR® BE YOUR GUIDE
Vanguard's robo-advisor makes staying on track to your retirement goal simple—through automated, personalized investing.
All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.