Learn Asset Allocation
Learn Asset Allocation
Learn Asset Allocation most important decision investors make is not which individual stocks or bonds to buy, but how to allocate their money among the major investment categories, like stocks and bonds. Asset allocation determines a portfolio’s overall mix, or blend, of potential returns and risk. It is the foundation of long-term investing success.
An effective asset allocation model should be built around your financial goals, your personal risk tolerance, and your time horizon for reaching those goals. It should also consider the current market environment to help make timely adjustments as needed.
For example, if you have a goal that is several years out, such as purchasing a home, the amount of time you have before you need to access your investments will influence your ability and willingness to take risks. You may need to reduce your exposure to stocks in favor of bonds, which are less sensitive to short-term economic changes.
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There are many resources online that can help you find the right balance for you, such as free questionnaires available on the websites of many investment publications and financial professionals. Keep in mind, however, that results from these types of surveys may be biased toward financial products or services sold by the company or individuals maintaining the website.
Strategic asset allocation is a wealth management strategy that involves setting target amounts for each asset class and regularly rebalancing the portfolio to maintain these targets. This approach combines the stability of a long-term plan with the adaptability of short-term tactics, making it an ideal way to manage your assets and meet your financial goals.