What is asset allocation?
Asset allocation is the process of deciding how much of your investment portfolio should go into stocks, bonds or other asset classes (as opposed to picking individual stocks or bonds). Your decision in this respect is perhaps the single biggest factor that will determine your long-term investment outcome, so make it carefully. The basis of your decision is how much risk you are willing to take and your investor life cycle phase. More risk should mean, over the long term, a higher return. A key factor that determines how well your investment portfolio performs is the way in which you allocate your assets. For example, if every penny you own is invested in high-risk, you have the potential to earn huge profits-or lose everything that you have invested. Conversely, if you have your money allocated among several different kinds investments-stocks, bonds, money market funds and the like-your return is likely to be lower but your chances of losing everything are slim. Younger people can gen
Asset allocation is an extension of the principle of diversification. It focuses on combining different asset categories, such as stocks, bonds, or real estate, into portfolios that target specific investment goals. Asset allocation can help reduce investment risk while enhancing return potential. Exactly how your money is allocated depends upon your time horizon, your financial goals and your tolerance for risk.
Asset allocation is the decision about how to spread an investment between categories of financial assets (including shares, bonds, and cash) and tangible assets (including real estate, commodities, precious metals and collectibles). Asset allocation is generally driven by the desire to optimise the risk-return trade-off according to an investor’s time frame and investment objectives.
