Basics of Asset Allocation

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Fundamentals of Investing |

The first step in planning your portfolio is to figure out how to allocate your assets. What is your time frame? What are you investing for? How much risk are you willing to assume?

It's a good idea to ask yourself questions. Can you handle the ups and downs of the market, or do you get nervous whenever the market drops in value? Are you looking to make large gains and tolerate significant risk, or are you comfortable with more modest gains and less risk?

Factoring in your personality is crucial to deciding how to allocate your investments. Even though you may have a long time horizon and could withstand market fluctuations, you may prefer lower risk investments because you can't stand seeing your accumulations rise and fall each quarter. Or, you may have a short time horizon and are thus suited to a conservative portfolio, but you seek a riskier investment for the chance at higher gains since you have other assets to draw on in retirement.

Consider the model portfolios as a general guideline below to see which one matches your investment style most closely. And remember, Dreyfus or your advisor can help you with asset allocation decisions and planning.

Model Portfolios

Conservative Model
This may be appropriate for investors who prefer current income over long-term capital appreciation, but are willing to accept some volatility associated with equity investments. The assets in this portfolio model are allocated primarily to fixed-income securities.

Moderate Model
This may be appropriate for investors whose primary objective is growth, with secondary needs for current income. The assets in this portfolio model are balanced among equities and fixed-income securities.

Aggressive Model
This may be appropriate for investors whose primary objective is capital appreciation and who are willing to accept a higher level of risk. Assets in this portfolio model are invested primarily in equity investments.

There is no guarantee that these asset allocation models, or any other asset allocation models, will successfully achieve their stated objectives.
Past performance does not guarantee future results.
Source: Ibbotson Associates, Inc. © 2006. All rights Reserved. Used with Permission. Ibbotson Associates, Inc. is a firm that specializes in asset allocation.

Investing without a strategy? That's a road to nowhere.

Your overall asset allocation plan — how your portfolio is invested across stocks and bonds, growth and value stocks, etc. — is one of the most important decisions you can make as a long-term investor.

That's because asset classes typically rise and fall over time and generally take individual securities with them. So it's your portfolio's "big picture" — not the smaller decisions about specific stocks and bonds — that you should devote the lion's share of your attention to over the long term.

Form your asset allocation strategy carefully, keeping in mind that to maximize its effectiveness, it needs to be custom-designed and updated regularly, and you'll have to stick with it over time.

But don't get intimidated. Get started with a Dreyfus investment program that makes asset allocation easy.

Dreyfus Managed Asset Program^SM: This is the construction stage of your strategy. Together with an advisor, you'll analyze your current portfolio and make any necessary modifications. Then, Dreyfus Managed Asset Program^SM performs ongoing, automatic analysis and rebalancing to make sure your portfolio is still following the plan you originally developed.

Next: Understanding Risk

Investors should consider the investment objectives, risks, charges, and expenses of a fund carefully before investing. Download a prospectus that contains this and other information about a fund, and read it carefully before investing.