Part 2: Crafting a Diversified Asset Allocation

With goals and risk tolerance in hand, allocate your capital across asset classes to balance growth and stability. A classic “60/40” split—60% equities, 40% bonds—serves as a starting point, but you can tweak it. Consider:

• Equities (Stocks): Offer higher return potential but higher volatility. You might diversify by region (domestic vs. international) and sector (technology, healthcare, consumer staples).
• Fixed Income (Bonds): Provide steady income and dampen volatility. Mix government bonds for safety with corporate bonds for slightly higher yields.
• Alternative Assets: Real estate (REITs), commodities (gold, oil), or even inflation-protected securities (TIPS) can further smooth returns and hedge specific risks.

Within each bucket, use low-cost index funds or ETFs to capture broad market performance without the fees of active management. Regularly contribute—through monthly “dollar-cost averaging”—to reduce the impact of market timing.