The proper asset allocation for an investor planning for retirement changes dramatically over…

The proper asset allocation for an investor planning for retirement changes dramatically over time. Investors who do not periodically update their asset allocation are exposed to poor performance that can significantly delay their retirement. This is exactly what occurred in 2008 to many investors planning for retirement who had not reallocated their portfolios away from stocks and into more conservative 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:

1. 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

2. 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

1. What is the ratio of stock to bonds in each scenario? Notice the dramatic shift from risky assets to safe assets. How would this change have impacted an investor during the stock market crash of 2008?

2. 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.