How Asset Allocation could be helpful to you achieving your investment goals. In the article “Asset Allocation “, first I must take an opportunity to define , what has actually been asset allocation. Asset allocation means dividing your investment portfolio among numerous diversifying categories. By adopting this strategy you can save your portfolio from the sharp decline if any wild swing is observed in any one sector.
It is the strong opinion of the stock experts that the single utmost important factor for successful investment is asset allocation.
In general , you would like to think about a diversifying stock, like bonds and cash. But the weightage that you select for your diversifying investment is called asset allocation.
For instance , You have decided to invest 80 percent in stocks, 15 percent in bond and 5 percent in cash. You can further break your investment down by this way.
Stocks 80 Percent
Income 20 Percent
Growth 40 Percent
Foreign 10 Percent
Small-Cap 10 Percent
Total: 80 Percent
Bonds 15 Percent
Long-term 10 Percent
Midterm 5 Percent
Total: 15 Percent
Cash 5 Percent
Short Term Bond capital Percent
Total: 5 Percent
These are conjectural numbers for a conjectural investor. You should always base your asset allocation on a base of number and reasons , for example, years to retirement, risk of tolerance, your savings , your income .
There are always ups and downs, observed in the investment cycle. If you divide your asset portfolio in different investment categories , it can be helpful for you. For instance cash and bonds can sum balance to your collection .
It is generally observed that some investors use the terms, like” asset allocation”, “diversification” and “interchangeably” ; nonetheless asset allocation is far more thoughtful process. Let me explain “diversification”. In diversifying investment we do not invest all money in only one investment category.
But diversifying investment does not give any specific percentage to each category. On the other hand , asset allocation is much more efficient than diversifying investment in a sense that it assigns explicit percentages to each group.
A wide ranging guideline is being given to the younger investors that they can be more aggressive in making investments .If short-term drops are observed in the market rotation , they have had more time for recovery. But for older investors conservative plan is recommended , especially for those who are near their retirement .As they do not have more time for recovery due to age factor , they are comfortable with this kind of plans. It is said the more time one has , the more chance one has to get objective.
Things that need to keep in Mind
“Asset’allocation”, is the procedure of dividing your investment among bonds, stocks and cash.
• A well balanced portfolio may help you protect from wide market fluctuations.
• Degree of risk tolerance plays an important role in making investment.
Things to Do
In turbulent markets , you are directed, have a look at portfolio investment for once in a quarter.
Check your holdings and try to find out the percentage of each category like, bonds, stock, and cash, figure out your comfortability with that accumulation.