In a previous article, we introduced the first of the four fundamental investment principles: determine your investor profile. These four principles are guides for you to dissect the tremendous amount of information regarding investment and retirement planning.
The second key investment principle is asset allocation.
Allocate Appropriately
This principle ties directly in with our first rule and simply means your asset allocation matches the level of risk you are willing to take.
For instance, your level of comfort with risk may be an even fifty-fifty split. In this instance, half of your contributions would be placed in more conservative funds, typically considered the G fund. The other half of your contributions may go to a fund with more risk involved.
Risk and Reward
Investing is not just about getting the maximum amount of return for your money. Although this statement may seem like a contradiction, let’s think about the implications.
No one exists in a bubble. No matter how much you may try to compartmentalize life, your work responsibilities, home situation, and investing preferences are not completely separate and independent entities.
For example: if you have a smooth and happy home life, that will have a positive effect on your productivity at work. In the same way, your investments—in this case for something as important as retirement—affect your mindset. If you have trouble sleeping because your asset allocation is in funds that are known to be riskier, you may simply need to invest in a fund that offers less exposure to loss.
Is the potential dollar amount gained from a riskier investment worth the stress? It may be, but this is a very personal decision that only you can answer.
Investing for the Long Term
Remember that retirement planning is investing for the long term. Generally, as a FERS employee you contribute to the TSP for years to build a solid base to draw on in retirement. Investing for your future is a task that demands patience, diligence, and the ability to maintain your course. To remain steady for 10, 20, or 30-plus years, it’s imperative to allocate your investments consistent with the level of risk you are comfortable with. Once you’ve allocated appropriately, stick to your strategy. An investment plan is no good if you immediately abandon it at the first roadblock. The benefits of this approach can be truly tremendous. For more on this topic, see our video on what it means to allocate appropriately.
Disclosure: The information contained in these blogs should not be used in any actual transaction without the advice and guidance of a tax or financial professional who is familiar with all the relevant facts. The information contained here is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for the individuals’ specific circumstances or needs and may require consideration of other matters. RBI is not a broker-dealer, investment advisory firm, insurance company, or agency and does not provide investment or insurance-related advice or recommendations. Brandon Christy, President of RBI, is also president of Christy Capital Management, Inc. (CCM), a registered investment advisor.
