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Jun 1 2009 12:00AM

Question

I am 35 and need advice on how to allocate my retirement funds in today's volatile stock market and economy. I want to know how much is wise to put in a "pre-mix" target-risk fund (it varies from conservative to aggressive) and/or how much to put in a stable value, fixed-income, large company growth, large company value, small company growth, small company value and international. With my plan I have the option to divide it up with any percentage I choose going along all of those options. I'm a novice at this and need some guidance. Would it be smart for me to put all funds in one of the pre-mixes, as I have been doing? Or, should I take a little risk because I have not made much money in the last 10 years, as I've had it in the target-risk fund? 

Answer

Your question is very common these days, said FPA member William Hohmann, CFP®, of Centerpoint Wealth Advisory. To give you comprehensive advice, he would really need to understand more about you, and the funds you have available including expense ratios.

The first thing to do is to visit your retirement plan's Web site to learn more about the concepts of asset allocation, diversification, time horizon and risk, as well your specific fund choices. What's more, he said you need to understand that the past 10 years have not been the optimal time period to place your strategy under extreme scrutiny. "There are not many portfolios (if any) which include stock choices which have performed at a level investors are extremely satisfied with," Hohmann said.

That said, it would appear as if you are doing many things correctly. "You are diversifying amongst different asset classes and it seems that you understand the basic relationship of risk and reward," he said. "The fact that you continue to contribute to your plan says volumes of good things about you.  I would say that is a major accomplishment of which you should be proud."

Now, given your age and the assumed time horizon before you will use the money (30 years or so), Hohmann said he would probably guide you towards a more aggressive posture. "More aggressive meaning an allocation with more stock choices than bonds, cash, and stable value," he said. "I would still recommend having 20 to 40 percent in the bonds, cash, and stable value and the remaining 60 to 80 percent distributed to your stock choices." In addition, he suggests that you have some international exposure as well.

Now, the choice on whether or not to use the "pre-mix" choices should center on a couple of criteria, Hohmann said. First, expenses. Is the pre-mix more expensive than something you could otherwise arrange on your own?  Second, your time. How much time and energy are you willing to spend reviewing your investments? "Most pre-mix funds I have seen do a fair job for those who do not desire to monitor and manipulate their investments," he said.

If you need help sorting through your investment options, consider working with a financial planner.

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