ASSET ALLOCATION

Putting your money into different investments in different amounts is known as asset allocation.

The amount you invest in any particular kind of asset depends on your time horizon for retirement.

In the short term, cash, certificates of deposit and bonds have more dependable returns and the lowest volatility. But along with lower risk comes lower returns. In the long term, equities such as stocks generally have higher returns than other investments. So if you are 30 and have a long time until retirement, you might want to put a large percentage of your investments in stocks. If you are about to retire, you might want to start investing more in bonds and CDs.

The way you allocate your investments also depends on your risk tolerance—in other words, how much of your investment you can afford to lose.

If you have a high tolerance for risk, you are more likely to invest in more volatile investments such as stocks, regardless of your age.

You might also want to reallocate some of your investments upon reaching retirement. For example, you could keep the majority of your investments in long-term, higher-risk assets but move some of your money into short-term, low-risk assets to generate monthly income and decrease volatility.

You will also have to consider tax implications in any decisions you make about where to invest your retirement money.