|
Asset Allocation
Investments can be grouped together based on a set of common characteristics. For instance, stocks as a group are a different type of investment than bonds. Bonds as a group of investments are different from cash or CD’s. And the list goes on. These groups of investments are commonly referred to as “asset classes”.
This process of grouping investments into asset classes can be based either on very broad set of common characteristics, or a very narrow set of common characteristics. For instance, all investments that are equity investments (ownership, not debt) fall in the stock asset class. However, it doesn’t have to stop there. There are Large Cap, Mid Cap, Small Cap, and Micro Cap stocks. There are stocks that represent specific industries such as pharmaceuticals, utilities or technology. There are stocks from foreign countries. There is almost no limit to how far you can go to refine your search.
This grouping into asset classes is useful because it allows you to gather historical information on the performance and volatility measures from any given asset class. And although there is no guarantee that history will repeat itself, this information should give you an idea of how dramatic (or not) the ups and downs might be.
Asset Allocation is the process of selecting a mix of investments from various asset classes. For example, an asset allocation model may call for you to direct 60% of your investments into stocks, 20% into bonds, 10% into real estate, and 10% into cash or money markets.
The goal of asset allocation is help you find a combination of investments that provide you with an acceptable rate of return, with a level of risk and volatility you are comfortable with.
LongView, Inc. All rights reserved.
[Back to Top]
Don’t underestimate how much even small improvements to your current Retirement Planning and Investment Planning strategies can positively impact your long-term financial health.
Need a CERTIFIED FINANCIAL PLANNERTM in Orlando? GO
|
