Ideally, your investing style will provide the growth you need at a level of risk with which you’re comfortable. But both your needs and risk tolerance change as you age—and as external factors, such as the economic climate and the performance of your other retirement assets, fluctuate.
That’s where reallocation comes in. An asset allocation that suits you when you’re 30 may not be appropriate when you’re 60. Here’s how a model portfolio might change as an investor nears retirement:
Unfortunately, no single allocation model provides strong results in all economic climates, and certain circumstances might suggest that you should deviate from more common allocation models. For example, if an employer’s pension promises regular income in retirement, you may be comfortable investing your 401(k) more aggressively than experts might recommend for your age. Likewise, if retirement is a long way off, but signs point towards a bear market, you could reallocate your portfolio more conservatively to preserve some of the gains you have amassed.
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