What is Asset Allocation and why is it important when managing your portfolio?

Asset Allocation

 

It’s very important to learn how to invest and also how to manage investments wisely if you want for future financial security. That’s where Asset Allocation comes into play. This investment strategy is designed from the ground up with the idea of balancing risk and reward by splitting the portfolio assets based on investment horizon, risk tolerance and personal goals. You have 3 main asset classes, which are cash and equivalents, fixed income and equities, and the mix for each one of these investments will be different overtime.

Why is Asset Allocation important?

The main advantage brought by Asset Allocation is the fact that it allows you to identify the right way to invest for yourself. Not all investments will work for every person. Allocating your assets for certain investments and creating the right investment portfolio that works for you is very important. Personal goals are important here too. If you want to buy a car and that’s your goal, then you want to invest in short term bonds and certificates of deposits. If you choose to save for retirement, then you want to go with stocks or anything that delivers long-term benefits.

Is it important to diversify your investments?

Absolutely, you can’t keep all eggs in a single basket. What you want to do is to try and diversify the investments as much as you can. You want to be certain that investors like David Swenson, Warren Buffet, Ray Dalio, Carlos Slim, George Soros and many others have always tried to diversify their assets. Diversification reduces risk, even if one of your investments has a poor return, others will bring the average of the whole portfolio over time.

Research is pivotal here, you can’t invest money without knowing the type of return you can expect. Then there’s also the fact that you can also encounter a multitude of risks. Simply put, you really want to know what you are getting into and what challenges can arise. The more you know, the better the results you will get in the end.

According to Bill Gross, portfolio management is very important. It’s imperative to maintain cash in your account for any opportunities that might arise. Of course, you can’t just invest in anything without the right amount of knowledge. Known investors tend to diversify, but there are also those that stick to a certain niche, for example real estate. Understanding the pros and cons of each investment is crucial, since it will give you a very good idea of what you can expect.

Conclusion

As you can see, Asset Allocation is crucial if you want to know how to improve your investments and take them to new heights. When you start investing, you always need the right research and tools to assist you. If you want a great asset allocation and portfolio management solution, all you have to do is to try out FOLIO. This powerful tool is great for reporting on your assets, managing investments and helping you diversify by sharing asset allocation methodologies!