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The proper asset allocation for an investor planning for retirement changes dramatically over time. Investors who do not frequently update their asset allocation could be caught in a tragic investment scenario that significantly delays retirement. This is exactly what occurred in 2008, when many investors planning for retirement realized they had not reallocated their portfolios away from stocks and into fixed-income securities over the years, as they should have. Go to money.cnn.com and under the Personal Finance tab, select Calculators. Then choose the Asset Allocation calculator in the Investing category. Calculate an asset allocation for the following two scenarios: A. Need the money: 20 + years How much risk: As much as possible How flexible: If I miss my goal . . . OK During market sell-offs: See an opportunity to buy B. Need the money: 3–5 years How much risk: Not much at all How flexible: I can’t afford to miss my target During market sell-offs: Do nothing Explain the impact on an investor planning to retire in 3–5 years if the investor had maintained asset allocation A and not asset allocation B during the 2008 stock market crash.
Based on the data from the problem, we can do a calculation and get the following information:
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