As an investor, it can be overwhelming to decide how to allocate your assets, and when it comes to crafting a portfolio, there’s not a one-size-fits-all. Today we will explore the differences between two common investment strategies, the 60/40 versus the 80/20, and help frame those decision points. The right mix of stocks and bonds for you depends on several factors. You may have heard terms like 60/40 or 80/20. In this case, we are talking about a portfolio holding 60% stocks, 40% bonds, which is typically a more conservative approach.
A 60/40 v 80/20 Portfolio
The 60/40 allocation is designed to mitigate volatility or lower the risk of a portfolio and would be appropriate for investors who aren’t comfortable with larger swings in portfolio assets. The trade-off is that with less exposure to stocks, we would expect a lower return. On the other hand, the 80/20 portfolio is invested more in stocks and would have a higher expected return, but have more variability of returns, so potentially greater swings in your portfolio value.
We will also consider a client’s age and cash flow needs. What is your time horizon? What are your liquidity needs? We will also look at other outside holdings, like real estate or concentrated stock positions to help determine an appropriate asset allocation for you. So, which allocation is right for you? It depends on your investment goals, risk tolerance, and time horizon.
Which Mix Is Right for You?
If you’re a younger investor with a long time horizon and are comfortable taking on more risk, the 80/20 portfolio may be a good fit. However, if you’re closer to retirement or prefer a more conservative approach, the 60/40 portfolio may be a better option. It’s important to note that your allocation can change over time.
For example, as you approach retirement, you may want to shift your portfolio to a more conservative allocation to help protect your savings. To help determine your optimal asset allocation, it’s important to work with a financial advisor who specializes in financial planning. They help by crafting a plan tailored to your specific needs and goals, which in turn, provides important information and considerations used to design the appropriate asset allocation for you.
Please reach out to any of our advisors at Wealth Dimensions with any questions you might have!
For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Past performance is not indicative of future results. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.