Determining Your Risk Profile-Allocating Assets

"Asset allocation should be an ongoing process. By figuring out what percentage of your money you want in each sector and then periodically rebalancing, you may actually be able to improve performance over time."

- Lorayne Fiorillo, author of
Financial Fitness in 45 Days

Because markets tend to rise and fall without any regard to investor objectives, the percentages allocated to specific asset classes over time may no longer be in sync with your initial desires.

For example, say the stock market experiences a five-year bull run, consistently posting outstanding gains. However, the bond market remains flat over this time period. Although you may have initially allocated a 50-50% split between the two asset classes, you may find that due to its superior performance, stocks now represent 75% of your overall portfolio.

For this reason, it's necessary to periodically check your portfolio's asset allocation and ensure it's still in line to reach your goals. Automatic asset rebalancing programs, frequently offered by mutual fund and annuity companies--make it easy to maintain your asset allocation strategy. Here's how they work: When you first make the investment, you determine what percentage of assets should go into each fund or portfolio. Thereafter, the investment is periodically rebalanced to adhere to those original allocations.