Your asset allocation—the way you divide your money among the three basic investment categories of stocks, bonds and cash—helps to determine both the potential return of your account and the risks that its value may fl uctuate dramatically over a short-time period. The right mix for you depends on your personal goals, your time horizon and your tolerance for risks. Of course, asset allocation doesn’t eliminate losses or ensure profi ts but it may help reduce the risk that all your investments decline at the same rate at the same time. During the 2008 bear market, for example, an investor equally divided between stocks and bonds lost than less an investor with a 100% stock portfolio.

THE BUILDING BLOCKS
Stocks have historically delivered a high long-term return, but a very bumpy ride along the way. Bonds don’t fl uctuate as dramatically in the short run, but in the long run they’ve barely outpaced infl ation. Cash is the least volatile investment—it won’t keep you up nights—but it pays the lowest long-term return. The right combination of these assets helps create a portfolio with the potential to provide the long-term return you need without more short-term risks than you can comfortably handle.

SELECT YOUR INVESTMENTS AND ADJUST ANNUALLY
Most investors don’t need dozens of investments in the mix. You can build a well-diversifi ed portfolio with just fi ve or six-well chosen ones. A suitable retirement-savings portfolio might include large- and small-cap US bonds, foreign stocks, short-to intermediate-term bonds and cash holdings. Your allocation changes over time due to the ups and downs of the investment markets. Consider rebalancing at least once a year to get back on your chosen course. Then, just let time, steady contributions and tax-deferred compounding work together to help grow your nest egg.

INVESTING IN SYNC
A couple’s asset allocation strategy should encompass all their retirement investments workplace accounts as well as personal savings and investment accounts. Couples may want to coordinate all their accounts to fi t a single strategy. First, decide on your overall investment mix—for example, 60% stocks, 30% bonds and 10% cash. Then, think about how to implement that strategy using investments offered through your workplace plans. If you and your spouse can’t afford to make the maximum contribution to both your plans, take full advantage of the better plan after evaluating them for such features as company matching contributions and quality of investment options.
Think about your respective job situations, too. For example, a company requires a set length of employment before employer-contributed money to a retirement account is fully owned by the plan participant (a process known as vesting). If only one of you expects to stay in his or her current job long enough to be vested, that 401(k) plan is the one to favor.

DEBIT CARD CAUTIONS
Don’t assume a debit card won’t let you spend more than you have in your checking account. Most banks provide automatic overdraft protection on debit-card purchases. Each time you use the card to spend more than your current account balance, the bank okays a payment instead of rejecting the transaction and may charge you up to $35 per overdraft. Up until now, it’s been easy to incur several charges in one day if your balance is lower than you realized (perhaps because a check you deposited hasn’t yet cleared). All those fees can be budget busters, and that money could be going into your 401(k) account instead. But starting this summer, the Federal Reserve will require that your bank obtain your consent before it adds overdraft protection to your debit card. If you’re worried about overdrafts, consider a cheaper alternative—linking your savings and checking accounts.