How to Invest Your Savings: Asset Allocation for Beginners

When putting your savings to work, first set aside living expenses and planned expenditures. Divide the remaining money based on when you will use it and how much loss you can bear. Interest rate ETFs and TDFs can also lose principal, so decide the purpose of the money before choosing a product.

The allocation ratios and annual return of 6% are assumptions used for calculations, and the tax information also refers to the National Tax Service's guidance dated March 9, 2026.

The Order for Putting Your Savings to Work

Before choosing products, decide how much you can invest. Asset allocation means dividing money among different assets such as stocks and bonds. Your investment period and ability to bear losses should determine the allocation.

1. Separate the money needed for daily life. First secure money for living expenses and emergencies.
2. Write down when you will use the money. Separate planned expenditures such as tuition, deposits, and home purchase costs.
3. Compare products and accounts. Check the possibility of losing principal and the conditions for withdrawing money.
4. Set target weights and invest. Start with an amount that will not disrupt your daily life.
5. Review the planned and actual weights. Adjust the investment plan if the purpose of the money changes.

If you have loans, first check the interest rate applied to them. Compare the interest saved by repayment with the expected after-tax return from investing. If there is an early repayment fee, include it in the repayment cost.

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They use charts and models to discuss an asset allocation strategy.

Conditions Based on the Purpose of the Money

Even for the same lump sum, the appropriate management method varies depending on when the money will be used. If the investment period is short, it is difficult to allow enough time to recover from losses. Make decisions based on your actual spending schedule rather than your age.

Set the size of your emergency fund based on essential expenses and income stability. It should cover necessary expenses even if your income stops temporarily. You can learn about the relationship between the investment period and risk tolerance in Investor.gov's asset allocation guide.

Comparing Deposits, Interest Rate ETFs, and TDFs

Consider deposits for holding money under contractual terms, and funds according to your investment purpose. An ETF is a fund traded on an exchange like a stock. A TDF is a fund that adjusts its asset allocation based on a target date.

Deposits and installment savings accounts should not be compared based only on their stated interest rates. Each installment savings payment remains deposited for a different period. Even at the same interest rate, the interest differs from a time deposit in which the entire lump sum is deposited from the beginning.

The protection limit for eligible deposits was raised on September 1, 2025. At the same financial institution, the principal and stipulated interest are combined for each depositor. The limit for ordinary deposits is KRW 100 million.

All principal and stipulated interest on deposits and installment savings accounts held at one financial institution are protected up to a total of KRW 100 million.

This wording comes from the Financial Services Commission's “Everything You Want to Know: Deposits Protected up to KRW 100 Million Starting September 1.” Performance-based products such as funds are not covered by this protection. Check the scope of protection in the Financial Services Commission's guidance dated July 23, 2025.

Conditions to Check When Choosing an Interest Rate ETF

Interest rate ETFs do not guarantee principal like deposits. They are managed in connection with short-term interest rate benchmarks such as CD rates or KOFR. When interest rates change, the pace at which future returns accumulate may also change.

CD stands for certificate of deposit. KOFR is a benchmark interest rate calculated from short-term funding transactions in Korea. Even if a product name includes the term risk-free reference rate, that does not mean the ETF itself is risk-free.

• Tracked benchmark: Check which interest rate the product uses as its benchmark.
• Actual costs: Check trading fees as well as management fees.
• Trading price: Check the bid-ask spread and the difference from net asset value.
• Synthetic structure: Check the risk that a derivatives counterparty may fail to meet its obligations.
• Cash availability: Also check the date when proceeds from a sale can be withdrawn.

Synthetic products use derivatives contracts to replicate benchmark returns. The resulting risks are stated in each product's prospectus. For example, the HANARO KOFR금리액티브 prospectus explicitly states the risks of over-the-counter derivatives.

Criteria for Using TDFs in Pension Savings Accounts and IRPs

Long-term investors who want to reduce the work involved in managing asset allocation may consider TDFs. They generally reduce their stock allocation as the target date approaches. Even with the same target year, risk levels vary by product.

Pension savings accounts and IRPs are accounts that hold money. A TDF is an investment product that can be selected within those accounts. Depositing money into an account does not automatically complete the purchase of a TDF.

A TDF does not guarantee principal or living expenses at the target date. Automatic adjustments cannot reflect an individual's spending circumstances. Differences among products are also explained in Investor.gov's 2025 TDF guide.

Before putting money into a pension account, consider whether you may need to withdraw it early. Some interim withdrawals from an IRP are restricted to legally prescribed reasons. Check with the financial institution offering the account about taxes resulting from withdrawals and account termination.

Asset Allocation Example and Actual Risk Exposure

The ratios below are examples for reviewing the structure. They are not recommended ratios suitable for every beginner. In particular, they should be interpreted with the understanding that dividend stocks are also stocks.

Domestic stocks at 30% and overseas stocks at 25% add up to 55%. Adding 10% in dividend stocks brings the stock allocation to 65%. The 5% in REITs may also decline in price along with the stock market.

Bonds, gold, and U.S. dollars together account for 30%. This ratio does not indicate how much loss will be prevented. When interest rates rise, fixed-rate bond prices may fall. You can learn about the relationship between interest rates and bond prices in Investor.gov's bond guide.

Comparing Simple Portfolios and Common Mistakes

Having more products does not automatically increase diversification. Check both the types of assets and the actual holdings. Multiple ETFs may hold the same companies.

An action plan can reduce the tendency to delay decisions while searching for the perfect investment. First understand how the product can generate losses. Then invest only an amount you can bear.

Common mistakes include:

• Viewing gold as an asset that guarantees principal: Gold can also be sold below its purchase price.
• Classifying dividend stocks as safe assets: Stock price losses may exceed the dividends received.
• Thinking regular purchases eliminate losses: Buying in installments does not remove the risk of the investment.
• Reading the distribution rate as the total return: Both distributions and changes in the price of the assets held must be considered.
• Buying real estate first when the lump sum grows: First consider the concentration of funds and the time required to sell.

Example Calculation for Receiving KRW 3 Million a Month From KRW 700 Million

Even if KRW 700 million earns 6% annually, receiving KRW 3 million per month after tax is not guaranteed. The calculation below assumes an annual cash dividend yield of 6%. It applies only a withholding rate of 15.4% to ordinary taxable domestic dividends.

The 15.4% consists of 14% income tax and 1.4% local income tax. The general withholding structure for taxable fund income can also be found in the Midas Asset Management prospectus. This table does not reflect final tax settlement or separate costs.

Annual financial income generally also requires consideration of whether it is subject to aggregate taxation. The threshold for financial income subject to aggregate taxation is KRW 20 million per year. Tax-exempt income and separately taxed income should be assessed separately.

Starting with payments made in 2026, a special provision applies to dividends from qualifying high-dividend companies. Separate taxation requires confirming eligibility and submitting an application. The same tax treatment does not apply to every payment simply because it is a dividend. Check the detailed conditions in the National Tax Service's guidance dated March 9, 2026.

The annual return of 6% is an assumption for this calculation, not a guaranteed return. The monthly average also differs from the amount actually paid each month. The market value of the principal may also fluctuate.

Living Expense Withdrawal Schedules and Investment Cash Flow

To cover living expenses with investment returns, payment dates and withdrawal dates must be coordinated. It is difficult to assess monthly spending based only on total annual dividends. Money to use before dividends are paid must also be set aside.

Domestically listed ETFs generally settle 2 business days after the trade date. Do not assume that sale proceeds can be withdrawn immediately. Check the settlement structure in the Korea Exchange ETF settlement system.

Set your financial independence goal based on actual living expenses. List expected income, such as public pensions, separately. Review whether investment assets can cover the remaining expenses. As prices rise, the amount needed to maintain the same standard of living also increases.

How to Rebalance After Buying

Rebalancing means bringing changed asset weights back in line with target ratios. When prices rise or fall, the original weights also change. New investment funds can also be used to increase underweight assets.

1. Gather the current market values. Review assets across multiple accounts together.
2. Calculate the actual weights. Divide the market value of each asset by the total investment amount.
3. Compare them with the target weights. Also review whether the timing for using the money has changed.
4. Check adjustment costs. Calculate trading fees and taxes.
5. Adjust as much as necessary. Also check whether the allocation can be adjusted through additional contributions.