Allocate Your Assets Like a Pro

When you're picking specific stocks, bonds, or funds for your portfolio, consider how long you might want to actually hold each investment as well. Consider this three-grade approach to building your portfolio:

1. Primary core holdings: These are the significant positions you hold in your portfolio. Blue-chip stocks and investment-grade bonds are examples of potential primary core holdings. They're investments you would consider holding for the long term.

2. Secondary core holdings: These positions are more volatile than the primary core holdings. These investments augment your long-term positions. Such investments could include small-cap or mid-cap stocks or funds as well as overseas stocks or bonds (see "How Do I Invest Overseas?").

3. Non-core holdings: Investments like these can round out your portfolio, by including more sector-specific investments, such as index funds or focused funds (see "Index Funds" and "Sector Funds").

In keeping with the principles of asset allocation, consider putting the majority of your equity and fixed-income investments in primary-core holdings, with secondary-core and non-core holdings there to add a little risk.

Too Hands-On for You?

If using asset allocation to reduce the risk in your portfolio still seems too hands-on, you can still have a robust portfolio without having to pay for a financial adviser. Lots of investment companies offer something known as a pre-constructed fund (or target-date fund ), which is essentially a constructed, asset-allocated mutual fund. Pre-constructed funds are designed for a specific target year, so make sure to choose wisely if you decide to go this route (see "When Target-Date Funds Miss the Mark").