Whether you’re saving for retirement or simply aiming to grow your wealth over time, how you invest matters. Your investment strategy should reflect your goals, your comfort with risk and your stage of life. Understanding the basics of asset allocation and diversification can help you make more confident decisions and build a portfolio that supports your long-term plans. In this article, Meghan Hannon, CRPS®, CPFA®, Partner and Head of Retirement Plan Consulting, details the risk versus reward involved in investment decision making, as well as the importance of adjusting your asset allocation based on your career stage.
Getting to Know the Building Blocks
Investments are generally grouped into three broad categories or asset classes: stocks, bonds and cash equivalents.
- Stocks represent ownership in companies and typically offer the highest potential for growth but are usually subject to increased volatility.
- Bonds are more stable, though they’re not immune to risk. While these returns are more consistent, the growth potential is typically lower than stocks.
- Cash Equivalents preserve value and carry minimal risk but tend to grow very little.
Some investment options combine these asset types into one, such as mutual funds or target-date funds, which automatically adjust over time. These types of investments are common in employer 401(k) plans and can create a more hands-off approach to managing your portfolio.
Finding the Right Balance: Risk, Reward and Your Investment Mix
No investment is risk-free, but the level of risk you take on should reflect both your financial situation and your comfort with market ups and downs. Some investors are comfortable with big swings in value if there’s a chance for higher returns, while others would rather see slower, steadier growth that feels more predictable. This personal comfort level is your risk tolerance, and it can shift over time.
There’s also risk capacity, or how much risk you can realistically afford to take. Someone early in their career may have time to recover from short-term losses and can lean into more aggressive growth strategies. But if you’re closer to retirement or planning to draw from your savings soon, protecting what you’ve built becomes more important.
That’s where asset allocation and diversification come in. Asset allocation is the overall mix of investments in your portfolio—how much you put into stocks, bonds or cash. Diversification refers to how you spread your money across different investments within those categories. For example, instead of investing in one company’s stock, you might hold a mutual fund or ETF that includes many.
Together, these strategies can help reduce the impact of any one investment performing poorly. While they won’t eliminate risk, they can make your portfolio more resilient and help keep your investment plan aligned with your long-term goals.
How Investment Strategies Evolve with Your Career
Investment strategies are not one-size-fits-all—and they’re not set in stone, either. What works for someone starting their career might not make sense 20 years down the road. As your financial goals evolve, so should your portfolio.
In your 20s and 30s, time is on your side. A longer timeline allows you to take on more investment risk in pursuit of growth. Portfolios at this stage often lean heavily on stocks. Index funds, mutual funds and ETFs can provide affordable, diversified access to the market that is often available through your employer 401(k) plan.
During your 40s and 50s, balancing growth with stability becomes more important. You might begin shifting some of your portfolio toward bonds to reduce volatility, especially as your focus on retirement planning sharpens. This is a good time to revisit your asset mix and adjust as needed.
As you approach or enter retirement, preserving the wealth you’ve built becomes a priority. Many investors move toward lower-risk investments like bonds and cash equivalents. If you’re using an employer 401(k) plan, this is when target-date funds or conservative portfolios can help manage risk while still providing growth potential. An experienced wealth advisor can assist you in maintaining the most appropriate mix for your unique financial goals.
Helping You Get There…
Whatever your stage in life, the main idea remains the same: understand what you’re investing in, stay diversified and revisit your strategy from time to time. Markets will naturally fluctuate, but having a consistent and thoughtful plan helps keep your decisions grounded. If you’re investing through an employer 401(k) plan, it’s worth taking advantage of the resources available—whether that’s a planning tool, a target-date fund or access to financial education. Additionally, consider connecting with an experienced retirement plan advisor to discuss your personal risk tolerance and how best to align your investments with your financial goals.
This material is for informational purposes only and is not intended to provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation or needs of individual investors. Past performance does not guarantee future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss.
Investment Advisory Services offered through Boulay Financial Advisors, LLC a SEC Registered Investment Advisor. Certain Third Party Money Management offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor. Securities offered through Valmark Securities, Inc. Member FINRA, SIPC
Boulay PLLP and Boulay Financial Advisors, LLC are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc. Prime Global is not affiliated with Valmark Securities, Inc. and Valmark Advisers, Inc.