NEW YORK (AP) With the stock market up sharply since March, many Americans may want to take a fresh look at how their money is invested.
Financial experts say that the most important ingredient for successful investing is asset allocation deciding how much of your money you want in stocks, bonds and cash and periodically rebalancing your holdings to meet those targets.
''Asset allocation is important because it's going to determine how volatile your portfolio is, and it's the key determinant in the return on your investments,'' said Catherine Gordon, a principal with The Vanguard Group's investment counseling and research department in Valley Forge, Pa.
Vanguard recently completed an analysis of 40 years of earnings data, through bull and bear markets, and determined that the way assets were allocated was the most significant factor in a portfolio's performance.
To determine the best allocation for your accounts, you need to answer a few important questions: Are you more interested in seeing your money grow or in preserving your capital? Do you need the money in three years to buy a home or in 20 years to pay for retirement? How much risk are you willing to take?
''There are a lot of great tools on the Web to do this,'' Gordon said, adding that the Vanguard site at www.vanguard.com has an online questionnaire that can help.
Vanguard's model portfolios range from ''aggressive growth,'' made up 100 percent of stocks, to ''stability,'' which has just 10 percent in stocks, 80 percent in bonds and 10 percent in money market funds or other cash-like investments.
''People can do this on their own,'' Gordon said. ''They sense that it's complicated, and they doubt themselves. But I don't think they give themselves enough credit that they can handle this.''
The Calvert Group in Bethesda, Md., which specializes in socially responsible investing, gives three examples of possible allocation scenarios on its site at www.calvert.com.
A young saver putting away money for retirement in 20 to 30 years is likely to be most aggressive, with 75 percent of assets in stocks, 20 percent in bonds and 5 percent in money market funds, Calvert said.
An investor who needs the money in 10 years, say for a child's education, might be more cautious with 60 percent in stocks, 30 percent in bonds and 10 percent in money market funds, it said, while an older investor close to retirement would be even more conservative, with 30 percent in stocks, 50 percent in bonds and 20 percent in money market funds.
Once savers have determined the right allocation, they can then choose a mix of stocks and stock funds from large and small companies, from domestic and international companies as well as bond funds for each category.
To make things easier for small savers, a number of fund companies including Fidelity, PIMCO and Vanguard have begun offering asset allocation funds, essentially funds of funds that are designed for different risk levels and automatically rebalanced every three months.
Marty Beaulieu, executive vice president of MFS Investment Management in Boston, said more than $1 billion has been invested in MFS's four asset allocation funds since they were launched a year ago.
The most aggressive has almost 100 percent in stocks, while the most conservative has 35 percent in domestic stocks, 5 percent in international stocks, 50 percent in bonds and 10 percent in cash, he said.
''The idea was to make it easy, especially when it comes to rebalancing,'' Beaulieu said. ''People say, 'I'm going to do it,' but they forget or they don't get around to it. We do it for them and send them one statement so they can see what's happening to their portfolio.''
Beaulieu said one advantage of automatic rebalancing is that it accomplishes something individual investors are often loath to do sell ''winners'' and buy ''losers.''
In the past three years, for example, someone with a portfolio of stocks and bonds probably has seen the stock portion shrink and the bond portion increase in size. To rebalance requires selling bonds, which are still doing well, and buying stock.
The company's Web site is www.mfs.com.
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