Why Is Asset Allocation Important?
Asset allocation is an investment strategy that aims to balance risk and reward by dividing a portfolio’s assets among various asset classes according to your goals, risk tolerance, and time horizon. The main asset classes— equities (stocks) and fixed income (bonds)— have different levels of risk and return, so each will behave differently over time. There is no simple formula that can find the right asset allocation for every individual. However, the consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make and is the principal determinant of your investment results. In other words, selection of individual securities is not as important as the way you allocate your investments to the various asset classes. Asset allocation should be reviewed and rebalanced periodically. Your asset allocation may become misaligned due to current economic conditions and differences in investment returns of each asset class. Further,
