03/13/98

The Asset Allocation Approach to Investing

It's not unusual to hear "play more golf" as a goal for retirement. To some, having the time and financial resources to play the sport is synonymous with long-term financial achievement. In the same vein, there may be a link between golf and investment success. As in golf, where the correct club must be matched to each shot, the right investment (or investments) must also be matched to the specific objective to achieve financial success.

Investing is a highly individual activity. Many Americans may seek a new home, a comfortable retirement, college for the kids, or owning their own business. Different financial goals such as these -- which require different amounts of time and money to fund -- can be addressed with strategies and specific investments tailored especially for them. Many financial experts recommend using a strategy known as -- Asset Allocation -- as the best process of selecting the types and relative amounts of investments that are needed to meet your specific financial objectives.

Different Investment Strategies:

Even beginning golfers may know instinctively not to tee off with a putter. The issues to consider in selecting investment strategies are equally straightforward. For example, the need for emergency cash is different from the need to have adequate income during retirement. The investments one would select to meet these goals are equally distinct. All your personal financial objectives must be separated and managed differently.

Different Time Horizon:

Golf holes vary in length. Financial goals vary in length, too...length of time. To reach a financial objective that's 30 years away requires different strategies and investment products. In addition, one must always maintain a good match between current investments and market conditions to the time remaining to meet an objective's "deadline." Trying to achieve a 30-year financial goal with a first, "hot" investment is as unrealistic as a hole-in-one in golf.

Different Risk Tolerance:

For a short-term objective, like purchasing a new car or home, consider investments that emphasize stability; and ones that are reasonably liquid. On the other hand, if your retirement is many years away, consider growth-oriented investments. Historically, these types of investments have outperformed more conservative types over time, and still provide you with an opportunity to "ride out" market fluctuations. Your overall investment portfolio should match your risk tolerance and be adjusted periodically to maintain the proper mix of risk to safe investments.

Diversification:

Another key investment concept is diversification. This is really a fundamental first step in asset allocation. The idea is to avoid "putting all your eggs in one basket." Even to meet a personal financial goal where the strategy is well understood, it's a good idea to diversify with more than one specific investment, no matter how uniquely well matched the investment and the strategy seem to be.

Your different personal financial goals can be viewed as different holes on a golf course, with each hole requiring a different strategy, different investments -- or clubs -- and a different analysis of special conditions, like tolerance for market fluctuations. But a golfer is not expected to play more than one hole at a time, and that's essentially what you're doing with personal finances --planning for multiple objectives simultaneously. Like a golf game, your financial future is exposed to both wide-open fairways and easy putts, as well as an occasional "rough" or hazard. A good plan or approach to your golf game, combined with the right club selection, does a lot to increase your chance of success. Likewise, the right strategic plan for investing, combined with a smart selection of specific investments, helps maximize your approach to personal financial success.

For a review of your investment portfolio's asset allocation, diversification and match to your objectives or to establish a model for future investments contact Don Coffin. Or call him at: 203-281-7018. Don will also test your risk tolerance!

Please send questions or comments to dcoffin46333@wradvisors.com.