Benefits Of Asset Allocation



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I have been informed over the years that Asset allocation and diversification are the key words that represent the holy grail of investing.

Benefits of Asset Allocation

 

Dices Over Newspaper, Profit, Loss Risk, Wall StreetThey’re the secret to wealth for many people. Asset allocation is simply the process of determining the most effective, optimal mix of investment opportunities for your portfolio (a grouping of financial assets).

With Asset Allocation you should be looking at a term of 5 to 10 years at least and vary them to balance out the losses from the profits. So, to do this efficiently it is recommended to include the following, namely:-

  • Stocks – which should take up the bulk of your investments if you’re so inclined at 60% . It’s vital you find the right ones, I personally, look at penny stocks and or little known companies about to make it big.
  • Bonds – this should be as high yielding as you can possible get it and are usually over a fixed term. Give 20% to bonds.
  • Precious Metals – My preference being gold as it has steadily increased in value over the years and can’t be devalued. Give 5% of your portfolio to the asset.
  • Cash – This would relate to highly liquid and secure short-term instruments such as treasury bills, money market funds and CDs (safe haven investment).  10% of your funds is recommended here.
  • Real estate (land and the buildings on it) would take up 5% of your overall portfolio.

These are all arranged in this diverse mix to suit an investors style, level of risk aversion and speed of cashing in returns.  Eventually, the investor yields a much healthier return on investment than if they had not diversified their funds.

Importance Of Asset Allocation

To show how important asset allocation  is Ibbotson Associates, founded in 1977 and now part of the Morningstar Investment Management division. A leading authority on asset allocation with expertise in capital market expectations and portfolio implementation, did a study to identify the primary reasons for the success or failure of different investment portfolios. It found that only 5% of investment returns could be explained by “investment selection.” It is mportant to note that it found that asset allocation accounted for nearly 90% of investment returns! So, the aim here is to help you take the first steps to dividing your total investment funds into asset classes. An asset class is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations. Historically, the three main asset classes have been equities (stocks), fixed income (bonds) and cash equivalent or money market instruments.

Now you have the above information, the important thing is to start where you are and with what you can. Do let me know in the comment section below how you get on or to share your thoughts.

Resources

You can contact me for more information and consult on Asset Allocation for the individual, group or family.

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Disclaimer: The above is for information purposes only and not to be taken as advice or recommendations. I do    not offer investment advice and nothing on this website should be construed as investment advice. Please seek independent professional investment advice and carry out your own due diligence prior to acting on the information provided here.
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